Special 4-Part Report: Preparing Your 2013 Budget. Part 3: Insurance
June 19, 2012 — The outlook this year for your building's insurance costs? You'd better sit down: Michael Spain, president of the Spain Agency, predicts increases from 8 to 15 percent. "If a building has had a lot of claims in the last few years, it can be higher," he says. "If the building has had zero claims, it's going to be on the low side, but even with zero claims you're going to see some increase."
Spain recalls the case of one building where the premium went from $155,000 last year to $185,000 this year — a 19 percent hike. "That will certainly get their attention," he observes. But, by looking at the history of the building's payments, he can see that it got a great deal in the years from 2007 to 2011. "We think that if boards look at their historical costs, it may be more palatable," he says. It may be that it's going up now, but there were years where you saved some money."
Spain also advises that boards should be familiar with their claim history. "If you find out your rates are going up 20 percent, well, that may be because you have five major claims pending," he says.
Barbara Strauss, executive vice president of York International, says her clients saw increases as low as 3 percent and as high as 20 percent for 2012. She notes that one way to consider how much your rates may increase is to also think about what type of risk you have. If you have a large building, you have more chances for claims. If you have a lot of amenities — swimming pools, decks, etc. — that could lead to an increase in claims.
Terrorist Targets
Buildings that are close to possible terrorist targets can see increases in premiums because of the increase in risk. It's very hard to give a projection for 2013," she says, but a 15 percent bump is not out of the realm of possibility. All managing agents should consider thinking about that."
Edward J. Mackoul, president of Mackoul & Associates, predicts price bumps ranging from five to nine percent. Smaller buildings often get lower rates, he says, because more insurance companies can handle their claims and more competition means lower rates.
"If you've got an eight-unit building that needs $2 million in insurance, that's different from a four hundred-unit building that needs $60 million. There are not as many companies large enough to handle the possible claims," he says. "Some companies shy away from larger buildings because they fear they are not as profitable. A burst pipe on the 10th floor leads to 10 units being damaged."
Mackoul and Spain both say that the insurance industry works cyclically in pricing, hitting peaks and valleys. In recent years, insurance companies lowered rates significantly in order to lure new customers. But once those customers sign on and eventually start making claims, insurers have to raise rates to boost their profit margin. That cyclical nature, combined with last year's economic upheaval and rough weather, led to a perfect arena for hiked rates. "Everyone took a bath in 2011," Mackoul says.
Part 1: New York City Property Taxes
Part 2: Water and Payroll
Thursday morning: What to Expect in 2013 Fuel Costs
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