Despite a certain groundhog having seen his shadow, winter will come to an end before we know it, recalling the Hal Borland quote, “No winter lasts forever; no spring skips its turn.” The quote is often used to mean that even in difficult times, there will eventually be a change for the better. For the insurance market, however, the change we’ve been looking for remains elusive. While property and casualty rates looked to be leveling off somewhat at the beginning of last summer, recent and still ongoing events continue to impact the insurance market.
The 2025 California wildfires are estimated to have an economic loss of over $250 billion, making it one of the costliest natural disasters in United States history. By the end of January nearly 60,000 acres of land had burned, resulting in more than 200,000 people being displaced from their homes and at least 29 deaths. Some estimates put insured losses from the fires at close to $50 billion – a staggering 30% of reinsurers’ combined natural catastrophe budgets for all of 2025.
The 2024 hurricane season was more active than normal (and the second most costly on record), with 18 named storms, 11 hurricanes, and 5 major hurricanes. It was also the first year since 2019 to have multiple Category 5 hurricanes, with the earliest Category 5 hurricane observed in the Atlantic on record – Hurricane Beryl, which made landfall on July 01. While relatively small in terms of cost ($6.86 billion in damage), the early date for a storm of that magnitude made it noteworthy as the height of hurricane season doesn’t typically come until September and October.
Hurricane Helene (September 26) was the most expensive single catastrophe event in the U.S. last year, with $60 billion in damages, including catastrophic flooding in the Southern Appalachians, an area ill-prepared for such a disaster. Fast on the heels of Helene was Hurricane Milton (October 09), the second most intense Atlantic hurricane ever reported over the Gulf of Mexico. It was the third and final hurricane to make landfall in Florida last year, causing approximately $55 billion in damages, similar to the previous largest insured losses Florida experienced from Hurricane Ian (September 23-30, 2022).
At first glance, events like the October 07, 2023, Hamas attack, the war in the Middle East, and the Russia-Ukraine conflict might seem unrelated to habitational insurance, but global instability, driven by geopolitical conflicts, economic struggles, and natural disasters creates major challenges for the insurance industry including increased risk, making it harder for insurers to predict potential losses resulting in changes in rates and reduced coverage options based on location and circumstances. Inflation, too, directly affects insurance because it makes repairs and replacements more expensive, which in turn raises the cost of insurance claims. To keep up, insurance companies often increase premiums and consumers end up paying more.
At the same time, the investment market plays a significant role in an insurance company’s ability to pay claims. Insurers invest money to help cover claims payments and if those investments perform well, they can offset some of the rising costs. But if the market struggles, it can make things worse, forcing insurers to raise premiums even more to cover their expenses. A bullish market has thus far helped carriers, but an improved market alone cannot outpace catastrophic loss ratios.
The bright spots are a possible continued bull market, which would provide carriers with positive returns on investment (a guarded statement given that the unknown is the impact of tariffs on foreign goods which could destabilize if not disrupt the market). Still, the rate of inflation (2.89% as of January) is significantly lower than the long-term average of 3.28% and is the lowest it has been since early 2021. In addition, early predictions for the 2025 hurricane season are better than last year’s, with Tropical Storm Risk estimating 15 named storms, 7 hurricanes, and 3 major hurricanes. If accurate, this would be close to the 30-year average for the U.S. We should have a better idea of predictions following the National Hurricane Conference (April 14-17) when predictions for the 2025 season are announced.
As we advised throughout 2024, the number of carriers participating in the condominium and homeowners’ association arena continues to be small and selective. Carriers that charged adequate rate and required proper insurance-to-value during softer markets remain healthy (but are increasingly more careful about the risks they choose to insure). Carriers that did not charge ample rate during better times or that have paid more claims than they earned in premiums have either narrowed the scope of risks they are willing to write or are declining risks entirely. Older associations, particularly those with old pipes, old wiring, components near or past useful life, or lacking sprinklers will continue to find insurance more expensive and coverage less broad. Layered property policies for older risks, particularly those insured through excess and surplus lines markets, are likely to continue.
The information provided here will help you to stay better informed so that you and the associations you manage can focus on the things that will help your communities better control premiums: proper and regular maintenance and risk management. This will allow our respective clients to be as attractive as possible to carriers when they can’t change market conditions (but can change the things within their control) and will help with realistic budgeting for your upcoming insurance renewals.
The information in this email is generalized. A community’s individual exposures, age, and claims experience may impact their results. If you need specific budget estimates for a given association, please reach out to your client manager.
On average we are continuing to see carriers apply 5% to 10% increases in building values, which is on par with what we saw in 2023 and 2024. Carriers continue to demand proper insurance-to-value, which allows them to achieve adequate premium relative to the risk. Because of that, The Baldwin Group runs our own commercial replacement cost estimates using CoreLogic® or similar software to make certain we are also staying in step with the costs of repair and replacement for a given construction type and location to avoid extreme increases in replacement values.
In addition to increased replacement costs, the following commercial lines are seeing the following average rate changes*:
Commercial Auto: + 8.5% (may be higher depending on the state)
Cyber: – 1.5%
Directors & Officers Liability: – 1.9% (though in our experience, condominium D&O policies tend to increase 7% to 10% annually)
Flood: + 3.3% or higher (RCBAP/Condominium Building policies tend to increase 13% to 16% annually)
General Liability: + 4.8%
Property: + 7.9% or higher based on building attributes
Umbrella: + 8.6% or higher (the market for community associations is seeing much higher increases, however, of 20% or more)
Workers Compensation: – 1.4%
Terrorism Coverage: + 0.3%
The good news is that most lines have continued to see a slight leveling of increases since last summer, though the percentages above do not include the last quarter of 2024. In addition, an insured’s location, loss history, and coverage limit changes can result in higher increases.
* Information source: Council of Insurance Agents & Brokers, Commercial Property/Casualty Market Index Q3/2024 (July 1-September 30).
Properties experiencing the highest increases:
- Coastal, catastrophe-prone communities (wind and water exposure in particular; wildfire-prone areas will be scrutinized more closely as well)
- Communities located anywhere in a county that borders the coast, and within five miles of a large body of water.
- Communities with large wood frame structures (over $4 million per structure)
- Communities with wood frame structures of four or more stories (with or without masonry pad)
- Communities with frequent and/or severe claims
- Communities with building defects or issues including:
- older roofs (roofs 12-15 years or older may be insured only on an Actual Cash Value/ACV basis rather than Replacement Cost/RC)
- older wiring problems, including aluminum wiring, knob & tube, and Federal Pacific, Zinsco, Challenger, Stab Lok, or similar electric panels.
- older or troublesome plumbing, including galvanized pipes, polybutylene pipes, and copper with pinholes
- downspouts that empty onto paved surfaces, creating slip and fall exposures, particularly in winter.
- Older buildings with high values that are not fully sprinklered.
- High Rise Buildings in general.
- Communities currently insured through the Excess/Surplus Insurance Market; re-entry into the standard market may take longer than in previous years.
We have included some additional information below, regarding what is driving Property and Umbrella/Excess Liability costs.
PROPERTY INCREASES AND CHANGES
There are several factors currently affecting property rates and a more frequent underwriting reaction in addition to higher premiums:
- Increased Catastrophe Losses: Climate change is resulting in more frequent and more severe natural catastrophe events, which are impacting the insurance industry. Since 2017, catastrophe losses (hurricanes, wildfires, tornados, winter storms) have averaged global losses of more than $110 billion each year. In 2022 alone, there were 18 weather or climate-related events in the U.S. with total losses of $275 billion ($125 billion to $160 billion in insured losses). In 2023, there were 28 confirmed weather or climate-related events in the U.S. with losses totaling $280 billion ($108 billion in insured losses). In 2024, there were 27 confirmed weather or climate-related events in the U.S. exceeding $1 billion each. Including those not covered by insurance, the 2024 total U.S. losses from natural disasters were $320 billion ($140 billion in insured losses), making it the third most expensive year since 1980 and the second costliest hurricane season on record. Just as concerning, insured global losses driven by weather events surpassed the $100 billion mark each year for the fifth consecutive year, a strong indicator that the trend we’re seeing could be our “new normal.” While catastrophe losses may not have impacted your area or your client directly, they have and will continue to impact the industry overall, which affects the cost and availability of insurance for all insureds.
- Housing and Labor Costs: While Covid-19 had the greatest impact on the global supply chain, trade protectionism (import restrictions from other countries through tariffs, quotas, and government regulation), global conflicts (the wars in Ukraine and the Middle East), labor strikes, and weather events, will continue to impact the viability of global supply. Increased costs of building materials and a shortage of skilled labor prevail, yielding higher repair and replacement costs for damaged property and higher claims expenses.
- Reduced Capacity: In an effort to find some level of stability and profitability and reduce exposure to catastrophic events, insurance companies are being more selective than ever, including limiting the total insurable values (TIV) they’re willing to cover and turning away risks that exceed them. Some carriers are offering coverage using loss limits (a property insurance limit that is less than the total insurable value but high enough to cover the total probable loss). Layered limits (participation among several carriers unwilling to absorb an entire association’s replacement value) remains an option. Other carriers have stopped offering coverage in certain counties or states, while those that lost money or could not remain viable have withdrawn from the market entirely. The exit of carriers decreases competition, allowing carriers to be more selective in the accounts they choose to write and at the premium rate they want to write it.
- Higher Deductibles: If insurance is the transfer of risk (from the association to the insurance company in exchange for premium), then carriers are looking to transfer back some of that risk in the form of higher deductibles. Where a $10,000 per-occurrence deductible was the norm (for healthy associations that had little to no loss frequency or severity issues), carriers are making use of higher per-occurrence deductibles ($25,000, $50,000, $100,000, or more) and where per-unit deductibles were used on occasion in the past, we are seeing the more liberal use of per-unit deductibles (each unit impacted by the same loss is subject to its own deductible). Higher deductibles may be applied not just as a reaction to previous paid losses, but also as a preventive measure against future losses.
UMBRELLA/EXCESS LIABILITY INCREASES
After nearly a decade of stable, near-flat premium rates (from about 2009 to 2019), Umbrella and Excess Liability rates started increasing in earnest in 2020. The primary factors driving increases continue to be social inflation (the increase in claim severity beyond what is normally anticipated) and high-value jury awards also known as “nuclear” judgments, which have more than tripled in recent years. The desensitization of large verdicts and the media impact of those verdicts, negative public sentiment and the expectation of corporate accountability, erosion of tort reform (except by statute), and attorney tactics/litigation funding, nuclear awards – and the Umbrella limits required to fund them – will continue to yield higher Umbrella premiums. Carrier changes (less limit or percentage participation and more carrier layering) may be in store and the availability of high limits may be affected.
Are the carriers somewhat to blame? Probably. The desire to stay competitive and not raise premiums was an unsustainable strategy. 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.” Nearly five years later, the sentiment remains true, and the desire to remain “competitive,” driven by market demand (insured expectation) certainly contributed to previous stagnate rates and the need to make up for them now.
As part of the continued industry response, Umbrella and Excess Liability carriers are continuing to focus on underwriting (often re-underwriting entire books of business), electing to non-renew even long-term insureds if age, the ability to set aside reserves and spend those reserves on maintenance and life safety are not within underwriting specifications. Other carriers have decreased their capacity, increased or added an insured’s retention (the self-insured portion of the loss), increased pricing, limited or dropped coverage for specific coverages such as Directors and Officers Liability, amended insuring agreements, and in some cases, have left the market entirely.
The result? There remain very few Umbrella programs for community associations that can offer a selection of limits ($5,000,000 to $50,000,000), forcing layering of limits and rate increases. The outlook is that insureds will likely see additional increases of their Umbrellas of 30% or more through the end of the year. Higher rate increases or non-renewal may be in store for older and non-sprinklered buildings, as well as for risks that don’t meet other carrier-specific underwriting criteria.
WHAT TO EXPECT
Your insurance rates are based on property values, liability exposures, and your claims history – but also by the things in the market you can’t control. Controlling what you can, then, is paramount since changes in any one of those items can influence if not impact your premiums.
While some of the factors directly affecting insurance rates may be out of your control (location, age of your building(s), type of construction, number of units, amenities, etc.), there are things you can do to make your association more attractive to underwriters and insurance carriers. Addressing these issues will not necessarily result in decreased insurance premiums or credits, but they can help prevent or reduce future claims, allowing for less extreme rate increases at renewal and your ability to be attractive to other carriers.
- Initiate a water heater replacement program.
- Require owners to install burst-resistant (braided steel) washing machine hoses.
- Install pans under washing machines.
- Set a minimum heat setting requirement of 55° – 60° for units when owners are away.
- Require regular dryer vent cleaning and chimney inspections/cleanings.
- Install in all units water sensors and shut-off valves (some of these can now be controlled via an app on your smart phone)
- If you have an un-sprinklered or partially sprinklered community parking garage, consider making it fully sprinklered.
- Older, un-sprinklered or partially sprinklered buildings are becoming more difficult to insure; consider retrofitting your un-sprinklered building(s) to allow for better rates and carrier options.
- Conduct a Reserve Study or Reserve Study Update and follow through with improvement projects – follow statutory requirements if your state has them.
- Require tenants to carry renters’ insurance and remove any waiver of subrogation you may have that favors renters.
- Proactively address maintenance-related issues – before they become claims.
- Take advantage of any right of entry into units to address what owners fail to maintain.
- Keep good records to track patterns in losses and the problems that led to them.
- Keep track of what was original to a unit’s interior to assist at time of loss.
- Develop emergency preparedness procedures.
- Pass a Tort Immunity Amendment to your bylaws (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.
- Address any building defects or issues (i.e., older roofs, Federal Pacific or similar electric panels, troublesome plumbing, downspouts that empty onto paved surfaces, etc.)
- Consider increasing your property deductibles, even if not mandated by your insurance carrier.
- Discuss with management, the Board, and your broker what your claims appetite is beyond the deductible and whether a claim should be filed.
Pass a Deductible Bylaw Amendment that will allow the Association to shift deductible responsibility to an owner (in certain or all circumstances).
PROPERTY COVERAGE
Proper building valuation remains a strong carrier priority to ensure appropriate coverage at time of loss. As carriers calculate building replacement costs for 2025, we expect to continue to see increases in replacement costs. Carriers that have in the past offered Extended Replacement Cost and Guaranteed Replacement Cost coverage may offer premium savings by removing those endorsements in lieu of Replacement Cost coverage, which while absent depreciation, requires greater attention to reviewing a building’s replacement limit prior to each renewal. As a reminder, while we examine your communities’ replacement values prior to each renewal, we are not professional appraisers. The only way to prevent an insurance carrier from using their own building valuation is to hire a professional appraiser. 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 costs of building materials and labor, helping to prevent you from being under-insured part way through your policy term, but it’s important to keep in mind that with an ever-changing market, carriers may scrutinize values carefully as a contingency to applying those endorsements. Associations with Replacement Cost coverage should make certain that whenever possible, their property coverage includes Agreed Value Coverage (waives co-insurance) and is written on a blanket basis (the entire limit is available to all buildings and not limited to a building’s scheduled value).
DEDUCTIBLES
The application of higher deductibles is also becoming more common, particularly for associations located in coastal areas or that have a history of property claims. Many insurance companies are mandating 1%, 2%, or even 5% wind/hail deductibles (applied to each building’s replacement value) when the association is in a coastal county/area or within five miles of a large body of water; wind buyback policies (a policy to buy down the very high wind deductible) are still available but can be expensive.
Increased deductibles are often being applied to accounts as they renew, and in many cases, deductibles are being changed from a per-occurrence deductible (one deductible applies to a single loss regardless of the number of units affected), to a per-unit deductible wherein each unit impacted by a single loss has its own separate and distinct deductible. Per-unit deductibles are most commonly applied to water and water-related losses including common area and in-unit pipe breaks, sprinkler leakage, sewer back up, and ice damming, but we are also seeing per-unit deductibles (particularly for water) applied to high-rise buildings as a preventative measure.
Where per-unit deductibles are concerned, though, it is important to keep in mind lending guidelines, which changed effective February 07, 2024, and remain in effect: Fannie Mae and Freddie Mac limit the use of per-unit deductibles to a specific formula:
Building Value ÷ Unit Count x 0.05%
Example: $40,000,000 Building Value ÷ 130 units x 0.05% = $15,385
Therefore, the per-unit deductible cannot exceed $15,385.
Higher per-unit deductibles are allowed when the per-unit deductible is used for geographic peril such as ice damming and wind.
Fannie Mae and Freddie Mac limit per-occurrence deductibles to 5% of the blanket limit of coverage. Over the past year, carriers have responded to the lending limitation by applying where possible an endorsement that limits the per-unit deductible total to 5% of that blanket building limit, but carriers are not obligated to apply the endorsement. If an Association’s loss history requires a combined deductible that exceeds that cap, the carrier will apply it.
Understanding the challenges the secondary lenders have created; we are committed to negotiating deductible options on our insured’s behalf whenever possible to avoid lending eligibility problems.
OUR PROMISE
We understand the continued challenges of the insurance market for the foreseeable future and the concerns it presents to the communities you manage, the budgets they set, and the reserves they must set aside to maintain their properties – not just for the present, but for the future. We promise to provide you with the most comprehensive coverages available at the most competitive premiums possible. This includes marketing your insurance to additional carriers if we are seeing higher than normal increases from your current insurance company or if the program of insurance you currently carry can be improved. We believe that at the intersection of broad coverage forms, competitive premiums, and unparalleled service lies value. We promise to bring you the best value possible – to Protect the Possible®.
