Alex Seaman in Building Operations on June 16, 2022
From 2010 to 2020, we went through an unprecedented period of rate stability in the insurance industry. Rates for our co-op and condo clients were largely flat, with relatively small increases or decreases, depending on claims experience, property valuations and other underwriting criteria.
Those days are history. We are now seeing significant premium increases nationally — and in virtually all lines of business. In the New York City co-op and condo sector, this can be attributed to the following:
Property Insurance. New York City properties have been under-insured for many years. Insurance carriers had been accepting valuations on fire resistive high-rise buildings of $200 to $250 per square foot. Most of these properties cannot be rebuilt for under $400 to $500 per foot, and carriers are insisting on more accurate insurable values. Last year’s condominium collapse in Florida illustrated the importance of insuring to an accurate valuation. Carriers are also often insisting on far higher deductibles for water-damage claims — as much as $50,000 or even $100,000. Premiums will likely increase based on higher valuations.
General Liability. New York State Labor Law regulations have been present for many years, but they’re now having a huge impact on the insurance industry. Claims that are several years old had been reserved at modest levels. As injuries persist, claim reserves are exploding. Plaintiff attorneys are getting more sophisticated and aggressive, and due to the nature of the state law, the insurance carriers are having an impossible time limiting judgements. This is resulting in significant rate increases.
Umbrella Liability. For the past 25 years, virtually all co-op and condo properties in the New York City area have been insured in Risk Purchasing Groups (RPG’s) — similar businesses that share common risk characteristics and join together to purchase liability insurance from several insurance carriers. Premiums have been very low as it has been rare to see litigation exceed the primary $1 million limit provided on General Liability and Directors & Officers policies. Many properties have been receiving relatively high limits of liability (up to $200 million) at relatively low premiums. Claims exceeding $1 million are now increasing rapidly, often due to the Labor Law. Insurance carriers participating in the RPG’s are running for cover as underwriting losses rapidly escalate. The few remaining RPG’s have dramatically higher rates, far higher minimum premiums and lower limits of coverage. We are expecting rate increases of at least 50% to 100% this year, and it is very possible that increases will be far higher. In the near future, boards will likely have to consider far lower limits of liability on umbrella policies — possibly as low as $5 million.
Directors & Officers (D&O) Liability. This has been an enormously unprofitable sector for the few remaining quality insurance carriers offering coverage in New York City. Premiums for most New York boards are typically in the range of $2,500 to $10,000 — yet we have seen countless claims where defense costs alone exceeded $100,000. We are expecting rate increases of at least 25% to 50% over the next few years.
Excess & Surplus (E&S) Markets. Often we cannot underwrite through one of our preferred primary insurance carriers due to either the client’s poor loss ratios or unacceptable underwriting criteria. In the past the rates with these E&S carriers were typically 30% to 50% higher than the standard carriers, and coverage terms are typically more restrictive. E&S carriers are undergoing larger increases along with tougher underwriting guidelines. As a result, when we have to utilize E&S carriers we are often seeing premium increases of 100% or more.
Claims experience has always been a primary factor in negotiating renewal terms. It will become increasingly important to maintain diligence in loss control and risk transfer.
Based on current market conditions, I recommend that boards budget for 15% to 20% increases in insurance premiums. If the property has had significant claims in the past few years, the board should budget even higher. In many cases the increases will be less than 15%, but the market is so volatile that it is likely safe to project on the high side.
Alex Seaman is senior vice president at the insurance brokerage Hub International.
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