What NYC co-op and condo boards can do about higher insurance premiums

For several years, New York City co-op and condo boards have been dealing with rising insurance premiums. This is largely due to the higher costs of labor and materials as well as an increase in expensive claims. To offset the risk of these claims, premiums have risen, there are more exclusions in the policies, and in some cases buildings are even seeing policy renewals denied. 

Any type of structural damage or injury to someone in the building can create a huge financial risk. There are several ways boards can keep those risks to a minimum. This involves getting ahead of major structural or mechanical repairs, making sure anyone doing work in the building has suitable coverage, and having a process in place for verifying that insurance.

Get ahead of major structural or mechanical repairs

How old are the building’s risers? What’s the state of the boiler? These are some of the questions boards should be asking to get ahead of major structural or mechanical repairs. If the risers are 60 years old and prone to leaks, your insurance premiums will reflect that. 

“Take a proactive approach,” said attorney Parag Parekh, a partner at law firm Moritt Hock & Hamroff. “If you know the boiler is due for a replacement, don’t wait until it dies, start the process in advance.” Having ongoing inspections of your equipment can act as an early warning system for issues that could result in a claim. 

If risers are old, a leak detection or water sensor system can help. If you can bank a few years without claims, that can have a positive impact on your premiums. “There are real savings to be had there,” said Sophie Bird, senior vice president at insurance provider IMA Financial Group.

In some cases, a reserve study can be helpful in organizing information about a building. This is an assessment of a building’s envelope and mechanical systems, typically done every three to five years, providing information on the age and condition of equipment. “It can only help, when it comes time to renew coverage,” Parekh said.

Insurance premiums can also be affected by Department of Buildings violations, whether related to the facade, garage, or parapet. “Make sure violations are properly addressed,” Parekh said. This may result in an expensive repair project but will ultimately minimize insurance premiums the board otherwise has limited control over. 

Higher deductibles can mean lower premiums

Adjusting the building’s insurance policy is one way to minimize increases. When insurance was cheaper several years ago, buildings carried lower deductibles. Raising those deductibles can have an impact. “We've been able to keep premium increases to a minimum by increasing some of the deductibles,” Bird said.

A similar strategy can be taken with umbrella limits—the additional layer of insurance, separate from liability insurance, which covers damages once the underlying policy limits have been exhausted. Several years ago a board could affordably take out $100 million or more of umbrella coverage. 

“They were used to having these really high limits of insurance,” Bird said. Now she sees a lot of buildings lowering those limits to $50 million or $25 million or as low as $5 million. “That has been a way to mitigate the increases in premiums,” she said. 

Ensure every project has appropriate insurance coverage

Insurance costs are associated with risk so if there is a contractor coming into the building or a shareholder planning to renovate their apartment, it’s crucial they have the correct insurance in place. 

“No matter how small the job or how small the vendor, they should always be properly covered before they step foot onto your property,” Parekh said. 

It can be expensive for a contractor to adequately insure themselves, and it’s a cost typically transferred to the customer, making the work more pricey for the building. However, boards should be vigilant: Even if a reliable vendor has always done the condo’s landscaping work, if they don’t have adequate insurance, it’s not worth the risk. 

“It's not something that's going to help your premium right now,” Bird said. “What it will do is prevent you from having a really bad claim where you could be getting non-renewed by your carrier or see significant increases in premiums.” 

Have procedures in place for verifying insurance 

To verify a contractor's insurance the first step is to review not just the Certificate of Insurance (COI) but also the coverage identified in the COI. 

“The COI just tells you what coverage is there but doesn’t show what the policy will cover in the event of a loss,” Parekh said. Your building’s insurance carrier is best placed to review this. “They'll provide comments and feedback,” he added. 

The vendor should also sign a contract saying the board, building and managing agent will be held harmless and indemnified if there’s damage or an accident. Under New York Labor Law buildings can be held liable for job site injuries even if the injured person was partially at fault.  

“Those labor law claims are really what’s been driving the increase in liability and umbrella premiums in New York,” Bird said.  

So what is adequate insurance? “The contractor is going to have sufficient limits, sometimes in millions of dollars,” Parekh said. In addition, the policies behind those limits should also lower your risk. Crucially, you should review any exclusions in the policy. For example, if this is a roofer, does the policy have height limitations? “You're looking to make sure that they're covered for the work that they're doing,” Bird said.

Know when your renewal is due 

The more time you have to consider your renewal the better. At IMA Financial, the process begins four months in advance. Most board members are not insurance experts. “It's not something they can look at and quickly say this is great or not,” Bird said. 

Starting the process early gives boards time to ask questions, ask for changes, and get the best deal.

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