Addressing the Hard Insurance Market: Strategies for Boards

Rising insurance premiums and dwindling coverage have co-op and condo boards at the mercy of what’s called a "hard insurance market." This is largely because insurers' are trying to offset billion-dollar losses with higher premiums, lower coverage and exclusions. In the face of escalating costs, boards are forced to explore different ways to reduce liability and safeguard their communities.

Shifting liability. A key strategy to mitigate risk is to shift liability from the board to unit owners. The typical association policy makes the co-op or the condo responsible for damage to a unit if there’s water infiltration through the roof or facade. Relieving the board of certain repair responsibilities, such as water damage or fire, is a way to better control increases in premiums. Typically this is achieved by amending the proprietary leases or condo bylaws to delineate specific scenarios where unit owners bear responsibility. This reduces the association's exposure to frequent claims, for example after an intense storm. Such claims can result in exclusions or premiums increased by 30% to 40% at renewal time. Shifting liability also incentivizes homeowners to secure their own insurance coverage so that in the event of water damage in the apartment, the cost of repairs would fall on the unit-owner’s insurance. 

Insurance requirement. A requirement that unit owners carry insurance can be achieved either by passing a house rule or by passing a condo regulation. It’s not dissimilar to the carpeting rule: If the board requires 80% carpeting, that could cost you $3,000, but protects you against noise complaints. Similarly, if the board requires owners to carry their own insurance, that may cost $800, but it protects against costly disputes. An effective approach to getting shareholders and unit owners to comply is to include, in annual notices, a demand that an owner furnish a certificate showing they're covered by homeowner's insurance.  When the amendments are in place, it’s important for the board to make clear that fines will be imposed if unit owners do not carry insurance. Boards should follow through on this to make it clear they are serious about the shift in responsibility.

Proactive maintenance. Another strategy to manage premiums and lower risk for the building is to increase your due diligence regarding maintenance and safety. Make sure your sidewalks aren't cracking.  Make sure you building is compliant with The Americans with Disabilities Act so you don't face a discrimination lawsuit. When work is planned, make sure all the contractors carry the appropriate insurance coverage.  If they don't, the liability will fall on the building.