This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: We are finalizing our 2024 condo budget. Do you have any advice for ways to save money?
Answer: As a former Condo Board Treasurer, I feel the pain that this time of year brings, so I’m happy to offer some advice that helped me finding savings while I oversaw the budget and has helped other Associations do the same… review your Master Insurance Policy.
I know, it’s not the most exciting answer, but your insurance policy is likely a top three expense every year and if you haven’t reviewed it lately, there’s a good chance you can cut the cost by 10% or more and probably improve your coverage at the same time.
I’m not an expert in insurance so, I asked Andrew Schlaffer, President of ACO Insurance to provide some details on what Boards should look for when they do a review of their Master Policy. If you’d like to discuss a review with Andrew directly, you can reach him at 703-595-9760 or [email protected]. Take it away Andrew…
Hardening Markets, Increasing Premiums, Decreases in Coverage
The condominium insurance marketplace is facing challenges that will impact homeowners in 2024 and beyond. The combination of catastrophic storms and reduced reinsurance capacity continue to wreak havoc on many communities worldwide causing some property insurance markets to increase rates and/or exit the habitation market entirely. Through the first two quarters of this year, on average, US property insurance renewal rates increased by 20%. Water damage claims are still among the loss leaders impacting Unit Owners locally, along with fire damage and wind/hail claims. The DMV is home to many aging condo buildings that continue to struggle with mitigating water damage losses and their impact on insurance premiums.
As water damage claims continue to rise and property damage costs increase, many insurance carriers are beginning to make changes to their coverage offerings that may increase your risk exposure. A few examples of these coverage changes include increased deductibles, per unit water damage deductibles, removing coverage for Sewer or Drain Backup and Wind-Driven Rain.
In general, condominium property rate increases in the DMV have been significant and unpredictable. Much of the pricing impact can depend heavily upon carrier underwriting discretion which highlights the importance of your insurance professional specializing in this space. It is unheard of for Master Insurance policies to receive between a 10% to 20% property rate increase. For struggling communities, these rates are much higher.
The umbrella/excess liability carrier marketplace has also faced tremendous disruptions. There are several factors driving these rate increases including but not limited to: COVID-19 impacts, years of underpricing, reinsurance rate increases, and the rise of nuclear verdicts (claims over $10MM).
Additionally, there have been several specialty real estate programs who no longer offer umbrella/excess liability options for the habitational industry which has put a lot of strain on remaining carrier markets to fulfill the increase in demand. Many communities can expect umbrella/excess liability rates to increase between 10% to 25% this year.
Pillars of Insurance Reviews
Condo insurance reviews require a holistic approach, so it’s important to break the cost into a few distinct categories: insurance premium, deductible expense, and out-of-pocket costs. To effectively accomplish long-term savings, all three of these categories need to be considered and addressed with a qualified insurance professional.
Adjust Coverage Responsibly to Save on Premium
Premium is certainly a factor to consider during the insurance selection process; however, available insurance products differ significantly. Coverages and services should be very carefully analyzed and compared. While omitting various coverages will save premium dollars, it might also result in substantially increased costs to the Association for out-of-pocket expenses related to uncovered claims.
It is critical to work with a professional who understands local insurance needs and can adjust your insurance program in a way that maximizes premium savings while maintaining adequate insurance coverage. Some coverages may be required by statute and/or Association documents, so cutting required coverage exposes the Board to unwanted risk.
