We want you to be aware of changes in the marketplace which are continuing to increase insurance costs, so that you can make necessary adjustments to your budgets ahead of time.
The information is generalized. If you need specific budget estimates for a given account, please reach out to your community manager.
On average we are currently seeing 5%-10% increases in building values, which is trending down slightly from what we’ve seen over the past 2 years. On top of increased replacement costs, we are seeing the following average rate increases:
Commercial Auto: 9%
Directors & Officers Liability: 7%
General Liability: 9%
Property: 16%
Umbrella: 50% or higher
Properties experiencing the highest increases:
- Coastal Catastrophe Exposed Communities (wind, water, etc.)
- Communities with Large Wood Frame Structures (over $4mil per structure)
- Communities with frequent or large claims
- Communities with building defects or issues (e. older roofs, Federal Pacific Panels, troublesome plumbing, etc…)
- Communities currently insured through the Excess/Surplus Insurance Market
I’ve included some additional information below, regarding what is driving up property and umbrella costs.
PROPERTY INCREASES
There are several factors currently affecting property rates:
- Increased Catastrophe Losses: Over the past five years, natural catastrophes (hurricanes, wildfires, tornados, winter storms) have averaged global losses of $100 billion. In 2022 alone, there were 18 weather or climate-related events in the U.S. with losses exceeding $1 billion each with total losses of $160 billion. The top 10 costliest natural catastrophes in the United States occurred between 1992-2022, with 5 of the 10 occurring just within the past 6 years. The recent Maui fire, which destroyed 3,000 homes and businesses, is expected to be a $6 billion event. Hurricane Hillary, which made landfall on August 19, 2023, is the first hurricane to hit the west coast since 1939, and some areas in and around Palm Springs received 50% of their yearly rainfall in less than a day.
Catastrophe losses for the first two quarters of 2023 were the highest we’ve seen in over two decades, and they are slightly higher than the previous record set during the first two quarters of 2021. The is a concerning trend that does not seem to be improving. While catastrophe losses may not have impacted your area directly, they still impact the overall industry, which then affects the cost and availability of insurance throughout the marketplace. - Housing and Labor Costs: Increases in the costs of building materials and skilled labor are leading to higher repair and replacement costs for damaged property. This in turn increases the costs of property claims.
- Decreased Capacity: Many insurance companies have decreased to total building values they are willing to write in certain regions, to reduce their overall exposure to catastrophic events. Others have stopped writing altogether in certain counties or states, or closed their programs down completely. This decreases competition, allowing carriers to be pickier about which accounts they want to write and charge higher rates.
UMBRELLA INCREASES
Umbrella/Excess liability rates had remained flat more than a decade, but started increasing in 2020. The primary driving factor behind the increase is higher-value jury awards (nuclear judgements). Judgement amounts have more than tripled in the past few years. According to a State of the Market report for the 2nd quarter of 2020, “at the previous rates, carriers would have needed to write accounts for 100 years claim-free in order to make up for one limit loss.”
As part of the industry response, Umbrella and Excess Liability carriers have tightened their underwriting guidelines, decreased their capacity, increased the Insured’s retentions, increased pricing and in some cases pulled themselves out of the market entirely. Many umbrella programs have collapsed, making it difficult to obtain coverage. Some programs are excluding Directors & Officers Liability coverage, or capping that excess coverage at a lower limit than the full excess liability limit being provided.
There are very few remaining umbrella programs in place for community associations that are offering $5,000,000 to $50,000,000 limits, and they are all passing similar rate increases. We’ve seen premiums increase by 50% or more yearly over the past two years, and many carriers are now either capping their available limit at $5,000,000, or they will only provide coverage excess another carrier’s $5, $10, or $15 million limit. Rate increases are even higher for older and non-sprinklered buildings.
Many Umbrella programs are now charging an average of $1,000 per $1,000,000 in coverage.
WHAT TO EXPECT
Your insurance rates are based on property values, liability exposure and your claims history. Changes in any one of those items will influence the price of your insurance.
Some of the factors affecting your insurance rates are out of your control, such as your location, the age of the buildings, the type of construction, the number of units, etc., but there are things you can do to make yourself more attractive to underwriters. While these will not result in decreased insurance premiums, they can help prevent or reduce future claims, allowing for less extreme rate increases at renewal.
- Initiate a water heater replacement program
- Require owners to install burst-resistant (braided steel) hoses
- Set a minimum heat setting requirement of 55° – 60° for units
- Require regular dryer vent and chimney inspections
- Install water sensors and shut-off valves (some of these can now be controlled via an application on your cell phone)
- Conduct a Reserve Study or Study Update and follow through with improvement projects
- Pass a Deductible Amendment, to clearly state deductible responsibility in the event of a claim
- Require tenants to carry renters’ insurance
- Address maintenance-related issues, before they become claims
- Keep good records to track patterns in losses and problems
- Keep track of what was original to a unit’s interior
- Develop emergency preparedness procedures
- Pass a Tort Immunity Amendment to your By-Laws (only applies in New Jersey), to prevent unit owners and their spouses from suing except in cases of a “willful, wanton, or grossly negligent act or omission” by the association
- Consider increasing your property deductibles, even if not mandated by your insurance carrier
Proper building valuation is critical, to ensure you have appropriate coverage in the event of a loss and you are not underinsured. As carriers calculate building replacement costs in 2023, we expect to continue to see increases in replacement costs, although those increases are starting to level off. Please note the only way to prevent an insurance carrier from using their own building valuation software to determine the estimated replacement costs of the buildings would be with a recent professional appraisal report.
Deductible increases are also becoming more common, particularly for accounts that are in coastal areas or have a history of property claims. Many insurance companies are mandating 1% or 2% deductibles per building for all damage caused by wind or hail, if you are located in a coastal county or near another large body of water. Higher deductibles are often being applied to accounts as they renew, and in many cases deductibles are being changed from a single deductible per claim, to each unit having its own deductible for any damage caused by water, sprinkler leakage, sewer back up, or ice damming.
OUR PROMISE
We will continue to do our due diligence, to make sure you have comprehensive coverage at a competitive price. This includes marketing your insurance to additional carriers, if we are seeing higher than normal increases from your current insurance company.
Where available, we will try to place coverage with carriers that offer Extended Replacement Cost and Guaranteed Replacement Cost, to help protect you from additional increases in building materials, helping to prevent you from being under-insured part way through your policy term.
