After more than a decade of stability in the insurance market, we are now entering a hardening market, and it is causing major changes worldwide. Of all the coverages, property coverage is most affected, resulting in tough renewals for many commercial policyholders. For Condo Associations, insurance carriers were previously reviewing non-sprinklered, high-rise buildings more cautiously due to the risk of a large fire loss. However, more recently, the focus has shifted toward mid- to high-rise condominiums, both sprinklered and non-sprinklered, primarily older buildings but also some new, due to the risk of water damage claims.
What is a hard market and how could this affect your Condo Association?
A hard market is characterized by a high demand for insurance and a reduced supply. The effects of the hardening market are higher premiums, changes in underwriting guidelines (more stringent criteria), and changes to terms being offered.
Condo Associations are experiencing drastic changes due to the hardening insurance market. Regardless of loss history, carriers are increasing premiums significantly and are also increasing deductible amounts. Some carriers are adding on a separate higher water damage deductible to help manage the risk. We have seen deductibles go as high as $50,000.
If your Condo Association has an unfavorable loss history, carriers are more likely to non-renew your account. If you are non-renewed, you could potentially be kicked out of the standard market as carriers decline to quote due to changing underwriting guidelines. In these cases, Condo Associations end up in the Excess and Surplus marketplace with non-admitted carriers where premiums are substantially higher and can be multiples of the expiring premiums. In addition to higher rates, the terms and conditions are generally less favorable in the Excess and Surplus marketplace.
What can your Association do?
When faced with a tough renewal, you may have limited options and be faced with skyrocketing premiums and/or a huge deductible increase. Here are ways you could address this situation:
- Explore Options – Depending on your loss history and preventive measures in place, there may be other options available for your Condo Association. Utilizing your current Agent is a great option; however, there are instances where it may be beneficial to consult with others. You may want to consider some of the following: 1) agency resources, such as risk management and loss control service; 2) agency size and relationships with carriers; or 3) market assignments, as not all agents have access to the same insurance carriers.
- Implement Preventive Measures – Associations should review their losses. Are you able to explain your losses and what is being done to prevent future losses? Associations need to be proactive and stay up to date with building updates, including roofing, plumbing, electrical, and fire protection/life safety. Associations should also consider performing mandatory high-risk component inspections and repairs to mitigate future damages.
- Communicate with your Agent – It is imperative that you keep your Agent up to date on what the Condo Association is doing to help the Agent highlight your account to underwriters and negotiate on your behalf.
Unfortunately, in the hardened insurance market, shopping your insurance alone may not be enough to help your Condo Association manage insurance costs. As the market continues to harden, Condo Associations should consider effective risk management and loss control strategies to help navigate through the market. Unfortunately, it is hard to say how long the hardened insurance market will last. One thing for sure is that Associations should be prepared and budget accordingly, as we expect premiums and deductibles to continue to rise. +