2023 Insurance Market Trends: General Liability and Umbrella Policy Limits
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For three years now, underwriters and insurance professionals serving condominiums and cooperatives have struggled to obtain general liability and umbrella policy terms that adequately protect their clients, and in many ways, this has worsened. Despite national volatility across all property and umbrella insurance products, there are a few remaining alternatives for boards to secure excess liability policies that adequately mitigate risk and make sense for building budgets.
Alex Seaman, Senior Vice President | HUB International Northeast
Sean Kent, Senior Vice President | FirstService Financial
Insurance market volatility is not the norm.From 2010 to 2020, underwriters witnessed an unprecedented period of marketplace stability, most clearly illustrated by the average cost of insurance premiums. These premiums are impacted by a mix of factors including interest rates, local and national regulations, natural and unnatural disasters that impact a large segment of carriers, industry profits, and reinsurance requirements.
Historically, cycles of pronounced volatility have been dramatic, but typically subside in five years or less.
What is the cause behind the insurance premium increases?Rates have been creeping up since 2020 in virtually all lines of business. Although underwriters are still seeing some renewal programs with relatively small premium increases, more significant premium increases are unfortunately common. Why now?
The Surfside, Florida condominium collapse sent shockwaves throughout the industry.The collapse of Champlain Towers South in 2021, which resulted in total structural loss, was an unimaginable tragedy. The subsequent insurance disbursement to affected parties peaked at more than $1 billion which illustrated the importance of accurate building valuations. Many carriers now insist on far higher deductibles, especially involving water damage claims. For some carriers, this means deductibles valued between $50,000 and $100,000.
For many years in New York City, insurance carriers accepted valuations on fire-resistive high-rise buildings priced at $200 to $250 per square foot. This was well-before the Surfside collapse and before the COVID-19 pandemic when labor and material costs spiked dramatically. As a result, most of these properties cannot be rebuilt for under $500 per square foot, so carriers are requiring more accurate insurable values (rebuilding costs).
Labor Law 240, New York State’s “Scaffolding Law,” imposes strict liability on building owners should a project-related injury occur to a contractor or subcontractor employee at a building.In other words, if a contractor’s worker is injured while working at a building there may be no need for that employee to prove that there was any negligence on the part of the building owner, nor is any negligence of the injured party relevant. The element of strict liability in these cases makes it almost certain that a building owner will be named in a suit, which requires their insurance carriers to defend such claims.
Plaintiff attorneys are getting more sophisticated and aggressive on these claims. Due to the nature of New York state law, insurance carriers are also having a difficult time limiting judgements. This has led to significant rate increases and several major insurance carriers avoiding the multifamily sector altogether.
Many of these claim amounts have been judgments in the tens of millions of dollars.
Most of the underwriters still willing to offer liability coverage on behalf of boards and building owners now make it standard practice to attach exclusions for claims arising from construction work. This protects the insurance carriers from astronomical payouts, and also creates an intersection of exposure and liability coverage between the contractors, subcontractors, and building owners. More underwriters are now requiring a review of the insurance policies for each contractor performing work at a building to validate they are carrying adequate liability coverage. If the level of coverage being carried by contractors does not meet their standards, underwriters are more inclined to attach construction exclusions.
Insurance carriers participating in Risk Purchasing Groups (RPGs) are running for cover as underwriting losses have ballooned.A Risk Purchasing Group (RPG) is a consortium of insurance companies formed by an underwriter with the goal of providing competitive terms to a group of insureds engaged in similar businesses or activities. This includes multifamily residential buildings. Condos and co-ops have historically relied on RPGs to procure umbrella coverage with high limits of liability (up to $200M) and robust coverage at relatively low premiums (often under $4K). Before, premiums had been very low as it was rare to see litigation exceed the primary $1M limit provided on General Liability and D&O policies. Claims exceeding $1M are now increasing rapidly – often due to NY Labor Law.
Most carriers have exited the sector leaving boards in the wind to fend off major liability claims stemming from bodily injury or property damage that could exceed the limits of a primary general liability policy. The few remaining RPGs have dramatically increased rates and minimum premiums (at least 50-100% this year), with lower coverage limits and additional exclusions.
Available umbrella programs are inundated with submissions and will often not provide a quote until a few days prior to expiration, if at all. Many boards will likely have to consider far lower umbrella limits of liability on umbrellas – often as low as $5M.
Underwriting requirements are also more stringent regarding eligible occupancies, number of stories, the presence of sprinkler systems, loss control, and risk transfer procedures, or even existing Department of Buildings (DOB) and Department of Housing Preservation and Development (HPD) violations.
All HPD and DOB violations should be addressed without delay. Outstanding violations frequently result in an immediate declination from underwriters.
Directors & Officers (D&O) Liability policies are unprofitable for the few remaining quality insurance carriers in New York.D&O liability has been profitable in most other areas of the country, but they cannot continue to carry the New York City area without a regional rate increase. Premiums for most boards typically land in the range of $2,500 - $10,000. We have seen countless claims where the legal costs for defense exceeds $100,000 on their own. We are expecting rate increases of at least 25-50% over the next few years.
Claims experience has always been a primary factor in negotiating renewal terms. It will become increasingly important to maintain diligence in loss control and risk transfer. HPD violations should also be addressed on a priority basis as outstanding violations now often result in an immediate declination from underwriters.
Excess and surplus marketsWhen insurance cannot be underwritten through a primary carrier – either due to poor loss ratios or unusual/unacceptable underwriting criteria – quotes are obtained through the Excess & Surplus (E&S) markets. Historically, rates with E&S carriers were 30% to 50% higher than standard carriers. Now, most are seeking premium increases of 100% or more, on top of imposing stricter underwriting guidelines.
Insurance success stories: How our in-house insurance brokerage has saved millions for boards and building owners
Our in-house brokerage FS Insurance Brokers applies in-depth market knowledge, extensive buying power, and relationships with top carriers to reduce insurance premiums and maximize coverage for our clients. These experts have co-brokered thousands of placements for our clients, saving them millions in annual insurance premiums.
Curious what our experts have been up to this past year?
- A Manhattan co-op board saved more than $15,000 on their annual premium and secured an umbrella policy with better coverage
- A Queen condo saved 13% on a commercial insurance renewal with less exclusions than the previous policy
- We negotiated significantly broader coverage for a condo board whose incumbent broker could not provide the board with assistance during a difficult renewal
- Our partner offered coverage with guaranteed replacement cost, while reducing the association’s premium by 15%. during a challenging renewal
- A Manhattan condo board obtained broader coverage, higher limits, and saved nearly 25% on the annual premium