What do wildfires, a New York State law and inflation share? They’re behind the rapidly rising cost of insurance for co-ops and condos. Insurance, historically, has been subject to swings in premiums. The latest uptick sees no quick end, according to Robert Owens, president of The Owens Group, and there are few areas where boards can minimize increases.
Why is this happening now? A major problem in New York State, Owens said, is a law unique to us that holds a co-op or condo liable when a worker is injured, regardless of whether employed by the building. Claims can be expensive. This one law has caused many insurance companies to flee the market. The second driver is inflation, resulting in higher costs for materials. Though inflation is down, costs have not decreased.
Numerous natural disasters have devastated parts of the country. The costs are spread out in premiums nationwide. We’re paying for damage from wildfires in California and tornadoes in Mississippi. Conversely, when New York was struck by Superstorm Sandy and Hurricane Irene, the rest of the country assumed some of the burden.
Increasing pressure on insurance companies was a 37% rise in reinsurance (insurance for insurance companies) rates instituted in January.
Current conditions have reduced the number of top-tier insurance companies operating in New York, limiting choices for co-op and condos and decreasing competition. If a property can’t obtain insurance from one of the top-tier companies, it falls back to the second tier where coverage is reduced, and it can be more challenging to recover. Top-tier companies that remain in New York are more selective in insuring buildings, putting increased pressure on boards to get solid coverage.
Owens emphasized that boards and property managers should review their risk management procedures and make necessary upgrades. Buildings with a good track record are desirable for better companies. Some buildings require the shareholder/unit owner to have homeowners insurance. This is important when prime insurers vet a building.
Many residents, Owens pointed out, try to save on their premiums by underinsuring or having too high a deductible. In addition, many fail to insure for replacement cost and obtain only the initial value less depreciation which, depending on the age of the item, can be a significant difference.
Many also assume that the party at fault will be responsible for repair costs. Not so in many properties, especially those at the high end. Many co-ops and condos have subrogation clauses preventing the injured party from suing the responsible neighbor for accidents.
So, what about suing the building? Not viable. The condo or co-op association is responsible for occurrences outside the walls of the apartment in the public areas. It is not responsible for damage in the units unless the building was a direct cause of the problems.
Ira Meister
President and CEO
Matthew Adam Properties, Inc.
375 Pearl St. – 14th Floor
New York, NY 10038
(212)699-8900
imeister@matthewadam.com
