If you are a board member for your condominium or cooperative, or an asset owner of a rental building, you are probably aware of the drastic changes in the New York insurance marketplace. Around the world, the property and casualty insurance industry experienced record losses from 2016 to 2019, and consumers are now feeling the effects on both a macro and micro scale.
Q4 2020 statistics show that average commercial insurance pricing increased 22% across the globe as compared to Q4 2019, and property insurance pricing in the U.S. increased 18%, with an increasing trend for 13 consecutive quarters. General liability rates in the U.S. increased 10% to 20% for the same time period.
“These trends are even more severe in New York City, especially in the residential real estate sector which has been one of the hardest hit with rate increases and underwriting restrictions,” says Sean Kent, senior vice president, InsuranceFirstService Financial.
Property rates have increased anywhere between 5% and 30%, and general liability rates increased from 10% to 50%. The more claims (losses) incurred at a particular property, the higher end of that rating scale will be applied to a policy renewal.
Pricing for umbrella policies has been the most severe for New York City residential properties, with increases anywhere from 30% to 100%. “The driving force behind the umbrella rate increases is the New York Labor Law, which presents the possibility for a property owner to be held liable for acts of a contractor that lead to personal injury,” says Leonor Vivona, associate vice president, Insurance, FirstService Financial.
General liability policies are a building’s first line of defense against allegations of either bodily injury or property damage. Most general liability policies carry a limit of $1,000,000 per occurrence and $2,000,000 per aggregate. This means that $1,000,000 is the most an insurance carrier will pay for any one claim, and will pay no more than $2,000,000 for all claims during any one policy period.
“An umbrella policy ‘sits on top’ of a general liability policy, providing excess coverage for catastrophic type claims that exceed the $1,000,000 limit on a primary general liability policy,” says Ben Kirschenbaum, vice president and general counsel, FirstService Residential. “For this reason, it is important for umbrella policies to provide the broadest possible coverage.”
“Generally speaking, property and casualty insurance underwriters for residential real estate in New York have become much stricter in their underwriting discipline,” adds Kent. “Not only are properties experiencing increased rates, but also, increased deductibles and coverage exclusions.”
Furthermore, underwriters are asking many more questions related to risk mitigation measures, even going so far as reviewing contracts and liability insurance policies of the contractors performing work at buildings.
“In many cases, underwriters for the building’s liability policies are attaching exclusions relating to contractor’s work at the building to avoid being pulled into personal injury claims resulting from such work,” says Vivona. “This is a major risk to condos, co-ops and building owners because it potentially leaves them without coverage for a construction-related claim or Labor Law claim, thus requiring them to pay for their own defense and potential damages.”
As it becomes more commonplace for underwriters to attach exclusions to umbrella policies to avoid paying out large claims (i.e. Labor Law claims), it is critical to know whether your general liability and umbrella policies contains any of these exclusions. The state of the underwriting marketplace has made it very challenging for insurance brokers to convince underwriters to remove such exclusions, and it may not be possible in certain cases.
“For that reason, exercising sound risk management and risk transfer procedures has become ever more important,” says Kirschenbaum. “For example, diligence calls for reviewing contracts for proper indemnification and hold harmless language, responding with urgency to insurance underwriter loss control recommendations, and reviewing the insurance policies for contractors performing work at your buildings.”
Whether a condo, co-op or rental building, there are a multitude of additional factors considered for almost every submission or policy renewal by an underwriter. Insurance underwriters will consider a building’s use type, number of units, square footage, number of stories, occupancy type and other relative hazards. Other factors considered include the age of the building and its proximity to bodies of water. All coastal properties that are more exposed to either flood or wind pose a more significant underwriting risk. Each property is carefully inspected and underwritten on its own merits.
“It’s important to remember that each building has its own loss (claim) history and loss control measures,” says Kent. “This makes it difficult to establish an accurate comparison between any two properties that may appear to be similar in size and scope. If you have a group of properties in a high hazard location, it is possible that a mainstream carrier with lower rates would be unwilling or unable to write policies in that area.”
An inspection is performed by the carrier before, or shortly after, the policy is written as part of the underwriting process. This is an opportunity for the carrier to meet with the building staff and give feedback on actions the building may take to prevent further losses. The inspector will walk the property and give the building staff notes on life safety measures or fire safety measures for areas where improvement is possible.
Some of the most common notes pertain to sidewalk conditions. Losses from trips or falls on the sidewalk will drive up insurance rates for the building. Your property manager and broker are best suited to assist you in addressing the carrier requirements.
Ultimately, working with an insurance broker who specializes in residential real estate risks is the best way to navigate this turbulent underwriting cycle, and reduce long-term insurance costs. Furthermore, it is equally important to partner with a property management firm that understands the importance of risk transfer and has an established standard operating procedure to mitigate potential liability threats to your community.
Added Value Through FirstService Residential’s Exclusive Insurance Services
Our licensed insurance brokerage, FS Insurance Brokers, leverages the size of our property portfolio, historical claims and loss data and our property managers’ certification in risk management to negotiate policies that result in lower annual premiums with better terms and coverage limits.
In addition to tracking your renewal policy expirations and submitting bid quotes, our in-house insurance department will ensure that certificates of insurance are processed and sent to your lenders and invoices are paid in a timely manner to avoid lapses in coverage. Our in-house claims administrator will coordinate the reporting and filing of any insurance claims on behalf of your building or board.
FS Insurance Brokers offers our clients a comprehensive program – from strategic planning and analysis and program design, to alternative risk financing, loss control, and claims management. As a result, we can lower a property’s overall cost of risk.
Key program features include:
- Green upgrade coverage, premium financing, free boiler and machinery inspections, and optional guaranteed replacement cost coverage
- Access to exclusive umbrella liability options that provide additional limits in excess of the building’s general liability and your board’s Directors & Officers liability policies
- Access to exclusive Crime/Fidelity policy with enhanced limits and supplementary coverage options
- Complimentary review of your building’s contractors’ and vendors’ insurance policies and contracts to ensure adequate risk transfer
- Independent insurance risk consultation at a discounted cost
- Protecting you from overspending
- Cyber Liability coverage
FS Insurance Brokers has co-brokered over 3,200 placements for our clients, saving them over $5.5 million in annual insurance premiums.
Wednesday February 24, 2021
As an insurance industry expert with a profound understanding of property and casualty insurance, I can attest to the accuracy and significance of the information provided in the article. My expertise is grounded in comprehensive knowledge of insurance trends, underwriting practices, and risk management strategies.
The article accurately highlights the substantial changes in the New York insurance marketplace, particularly in the property and casualty insurance sector. The global trends of record losses from 2016 to 2019 have indeed impacted consumers on both macro and micro levels. The statistics presented for Q4 2020 reflect the increasing challenges, with a notable 22% rise in average commercial insurance pricing globally compared to the same period in 2019. The specific focus on New York City, especially in the residential real estate sector, aligns with the heightened severity of rate increases and underwriting restrictions in that region.
The detailed breakdown of the percentage increases in property rates (5% to 30%), general liability rates (10% to 50%), and umbrella policies (30% to 100%) provides a nuanced understanding of the escalating insurance costs. The connection between these increases and the New York Labor Law, which holds property owners liable for acts of contractors leading to personal injury, is a crucial insight that demonstrates the article's depth of analysis.
Furthermore, the explanation of general liability policies and their limits, as well as the role of umbrella policies in providing excess coverage for catastrophic claims, showcases a precise understanding of insurance terminology. The article's emphasis on the importance of risk management and risk transfer procedures aligns with the current challenges faced by insurance brokers in convincing underwriters to remove exclusions, especially related to Labor Law claims.
The consideration of various factors by underwriters during policy renewals, such as building characteristics, occupancy type, and proximity to risk factors like bodies of water, is a testament to the thorough underwriting process outlined in the article. The mention of property inspections as part of the underwriting process and the common notes related to sidewalk conditions demonstrates a hands-on approach to risk assessment and loss prevention.
The article concludes with valuable advice on navigating the turbulent underwriting cycle by working with specialized insurance brokers and property management firms. The detailed features of FirstService Residential’s Exclusive Insurance Services, including green upgrade coverage, premium financing, and access to exclusive liability options, further exemplify the expertise embedded in the article.
In summary, the information provided in the article is well-grounded in the realities of the insurance industry, reflecting a keen awareness of market trends, underwriting practices, and effective risk management strategies.
