SOME SOUTHERN CALIFORNIA ASSOCIATIONS ARE GETTING QUOTES THAT ARE UP TO 51% HIGHER THAN THEN THEY WERE JUST A FEW MONTHS AGO!
Is your condo association prepared to pay higher rates for inferior insurance coverage this year?
I’m sorry to report that my doom and gloom predictions for price hikes are coming to fruition sooner than expected. Due to the rapidly shrinking capacity in the earthquake marketplace, we are starting to see sharp pricing increases similar to those we experienced following hurricane Katrina. This is due in large part to A.M. Best cleaning up its act as a result of widespread criticism following the collapse of AIG etc. As a result, the catastrophe insurers are being scrutinized more closely and are compelled to be more conservative in order to maintain their “A Rating” by A.M. Best. This in turn has forced these insurers to either increase their ‘reinsurance’ (the insurance carriers purchase against the policies they write) or to decrease the amount of exposure they are writing. Many companies have no other choice but to scale back the amount of risk exposure they carry.
I’m sure you are wondering how things got out of hand so quickly, especially since there have been no recent major catastrophe losses. Well, things began to unravel earlier this year when one of the three major players for smaller buildings ($1,500,000 to $10,000,000), Essex, “voluntarily” withdrew from the marketplace. As a result, customers were forced to shift over to the remaining carriers causing things to tighten up considerably. It’s no wonder that ICW and QBE have chosen to hike their prices, increase minimum deductibles in addition to becoming pickier as to which risks they are willing to take on in the first place.
Here’s what’s happening right now in the LA basin:
CASE #1: West Los Angeles
I quoted an earthquake policy for a 3 story, 9 unit, 1 bldg complex back in February at a price of approximately $10,000. In June the board notified me that they were ready to bind coverage. Unfortunately, when I went back to the carrier to confirm terms they said that pricing had changed and the best they could do was $14,188. This meant a shocking 41% price increase in just 5 months and the board was left scrambling to find a way to come up with the money for this higher premium.
CASE #2: City of Los Angeles
In March I prepared a quote for a newly constructed 27,000 sq ft, 4 story, 1 bldg association with $4.7 million in coverage for $24,000. In the relatively short time it took the board to get approval from the owners (about two months), the quote had jumped to $28,243. In this instance, the board decided to settle for less coverage ($4 million) for roughly the same price of the original quote.
So what now?
We strongly suggest that you send a copy of this post or otherwise notify all property managers and boards that the earthquake sector is becoming increasingly volatile and that pricing is heading upward. Associations need to be prepared for possible rate hikes that could make it necessary to come up with thousands of more dollars than are currently budgeted for.
As your risk manager, our door is always open to you if you need up-to-date information, assistance or expert advice on any and all association insurance matters. It is our intent to keep you abreast of any changes in the marketplace that could impact you and your association.
Now is not the time to sit idly by. There are things that can be done to offset some of the imminent price increases. I will be happy to show you how to restructure your insurance program so that the association is maximizing the benefit unit owners can get from the CEA and using that to control the costs of the association and to get better value for the association. You can also look to shop the fire insurance. If the association is currently with Farmers or Allstate there are several companies that will offer superior coverage for 30-40% less premium. If you can get a significant offset to the cost of the package then we can contain the overall insurance budget even though earthquake insurance has gone up.
