Apartment, condo property owners find hard insurance market getting harder
Mary Corriveau thought things were tough last May when she wrote about the hardening conditions of the building insurance market.
It’s almost a year later. And things aren’t any better, says Corriveau, an agent with the West Suburban Insurance Agency in Butler.
"We now find ourselves firmly entrenched in one of the hardest markets the insurance industry has seen in decades," she says. "And, contrary to some people’s beliefs, this is not all due to Sept. 11."
Corriveau noted last year that "some industry insiders thought the market would stabilize within the next two years, but finding insurers who will take tenant-occupied business is extremely difficult, and premiums are again increasing dramatically."
But at least a dozen companies were quoting on insurance for apartment buildings and condominiums then. It’s a different story this year. "Many companies have now abandoned the habitational market altogether. We are now down to three."
And rates are 30% to 50% higher than last year, she notes.
"Some companies will not even quote on frame buildings anymore, some will only quote on buildings built after 1975, some have limited the building value to $600,000. Many policies are being non-renewed because the insurance companies have had to change their own guidelines to comply with their reinsurance agreements," she adds.
Corriveau is also being challenged in the Products & Completed Operations insurance area, where "it is almost impossible to find coverage for any business that needs" that kind of insurance.
"The result is that businesses we used to be able to quote in-house now need to be sent to Surplus/Excess Lines brokers, and they are swamped," says Corriveau. "It can routinely take weeks to get quotes back, and the premiums are very high."
It all puts agents in a tough spot, Corriveau says. "As an agent, one of the most difficult side effects of this market is trying to maintain the same level of communication and service to our customers that we have offered in the last. We don’t like waiting weeks for quotes either. And it is not unusual for us to call a Surplus Lines broker several times before they return a call."
The market situation could last another year, according to indicators that West Suburban uses.
The agency gathered the following information from underwriters regarding apartment and condo insurance.
1.) Premiums for existing condos are significantly lower than those for existing apartment complexes. Reason: Loss ratios for condos are considerably lower.
2.) Premiums for existing masonry construction are considerably lower than those for frame construction. Reason: Fire/weather losses are lower.
3.) Wood shingle roofs increase premiums. Reason: Fire losses are higher, repairs are more expensive.
4.) Premiums increase significantly if the building is over three stories high. Reason: Injury losses associated with fire are much higher.
5.) Emergency lighting systems reduce premiums. Reason: All Life Safety features help reduce losses.
6.) Sprinkler systems are a necessity for new construction and greatly reduce premiums. In fact, many companies will no longer accept new business for buildings that are not sprinklered, especially if they are frame construction. Reason: Non-sprinklered buildings have higher fire losses.
7.) Increased frequency of fire walls in buildings over 10,000 square feet reduces premiums. Reason: Decreased cost of fire losses.
8.) Furnaces in basements or on outside walls are preferred. Reason: Reduces costs associated with fire losses.
9.) Buildings built corner to corner require less distance between them. Reason the opportunity for a "fire leap" is reduced.
10.) Building distance can determine whether you will even be offered a policy and is the single most important underwriting guideline presently being used. Premiums are significantly impacted by the distance between buildings. Distance requirements may be increased if the area is a proven "high wind" or "drought" area, or if the risk is dominated by a nearby building of combustible construction. Distance requirements may be modified upward by as much as 100% if the building is located near a building that has high combustibility or an explosion hazard.
Small Business Times, Milwaukee, March 15, 2002
