Reining In Runaway Rates: What You Can Do to Lower Insurance Costs
April 30, 2013 — Rising insurance rates might be unavoidable, but there are steps condo and co-op boards can take to keep control of runaway rates and prepare for the unavoidable increases. Here are three simple steps every building should contemplate.
Fix What's Broken
Many cooperatives and condominiums have an Achilles' heel that results in repeated claims. Perhaps it's aging pipes that are prone to burst, or the slippery marble atrium that is a fall risk on rainy days. If a building has had several claims, it is a red flag for insurers and virtually guarantees a rate increase. In some cases, a property can lose coverage altogether if it is deemed too risky.
"If you're not doing anything to mitigate the problems or stem the tide, then you're going to get hit with rate increases," says Michael Spain, president of the Spain Agency, an insurance broker.
Show the insurance company that you are serious about repairing your building's problems. Update the electric fuses with circuit breakers. Install video cameras in the lobby to monitor slips and falls. Replace the aging pipes. Show that the risks are being addressed.
Raise the Limit
If the price tag on the premium is more than your co-op or condo can absorb, consider increasing the deductible. This will lower the annual premium and, in the event that there are no major incidents, the building will have to pay less up front. However, make sure the building's reserves are properly funded to cover the higher deductible if damage is incurred.
A higher deductible has a secondary benefit as well: it may reduce the overall number of claims a building files in a year. If the deductible is now $5,000, a building may resolve smaller problems through its reserve funds and thereby reduce its overall claims.
Prepare for Business Interruption Losses
Loss of maintenance income can be devastating to a co-op, especially when a property has suffered damage as well. Prepare for the possibility of loss of income by setting aside enough money in the reserves to cover 12 months of maintenance fees in the event that the damage is not covered by the policy.
Power outages were the main reason many buildings failed during superstorm Sandy. Properties could also consider investing in generators. If they had, many city properties would have functioned during Sandy and the residents would not have been displaced.
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