HABITAT Magazine
Savvy co-op and condo boards are always on the lookout for ways to soften today’s hard insurance market — a brutal world of rising premiums, shrinking coverage and, above all, microscopic scrutiny of a building’s claims record.
An Upper West Side condo built in 2010 suffered three major leaks over four years. Though none was catastrophic — the largest insurance claim was for $60,000 — the carrier took a dim view of the building’s track record.
The condo board brought in Sophie Bird, a senior vice president at insurance brokerage IMA Financial Group, who instantly saw the writing on the wall. “For the carrier,” Bird says, “the pattern indicated that there was a larger, more serious problem,” adding that buildings with multiple insurance claims on their loss record can have trouble renewing coverage, especially in the current hard market.
That’s precisely what happened to the condo, which was pushed into the dreaded “non-admitted” market — a last resort for buildings that insurers consider too risky — where coverage comes with higher premiums and less favorable terms. The condo’s annual insurance costs nearly tripled, ballooning from $50,000 to $130,000.
Bird’s task was to find specific steps the board could take to assure the carrier that the water problems wouldn’t continue, with the goal of keeping premiums steady — or, even better, bringing them down. Poring over the claims, she found a hidden culprit: the condo’s own governing documents.
“They made the association responsible for the cost of repairs for anything original to the units, including the floors,” Bird explains. “Since this was a relatively new development and few unit-owners had renovated, that meant most of the apartments had original floors. Every time water damage struck, the condo was footing the bill for repairs.”
And watching its insurance premiums go into the ionosphere.
Bird and her team saw a way out. “We spoke with the board and the property manager and pointed out that the governing documents were working against them,” she says. “We suggested that they look at amending the bylaws to make the unit-owners responsible for their floors and insure them on their homeowners’ policies. That would shift risk away from the building and, over time, improve the way insurers viewed them.”
Amending the condo’s governing documents required a supermajority vote, and convincing reluctant unit-owners wasn’t easy. “We helped the board make the case that bringing down the number of claims would bring down premiums, which would result in significant savings over the years (for everyone),” Bird says. “This was about making an investment in the building’s financial health.”
Eventually the amendment passed, and Bird’s team was able to go back to the carrier with a new message. “We said, ‘Here are the past claims, and a lot of the repair costs were for the floors. Now that unit-owners are responsible for them, you won’t be paying these claims going forward.’”
The strategy worked; in the first year alone, the building’s premiums dropped by $15,000. Bird is optimistic there will be more reductions ahead. “And if the insurance market softens in the next few years,” she adds, “it will improve their pricing even further.”