2023 Budgets: Insurance Market Update for Community Associations

by Gulfshore Insurance

Overview

For many community associations, insurance premiums are the largest overhead cost, so it’s very important to accurately forecast any changes for the coming year. Each year, we review market conditions and trends that may impact your insurance renewal premiums, providing you with an educated look at how they may impact your association’s budget. Below, we are breaking down what you can anticipate for 2023.

The insurance market for community associations in Florida continues to deteriorate.  All lines of coverage are being affected, not just property. Fraudulent or inflated roof damage claims are a significant source of the litigation that is plaguing our industry.  This is compounded by the plethora of public adjusters, unscrupulous contractors, and other storm-chasing enterprises, that have been permitted to swarm Florida, post-catastrophe. Reduced capacity, increased insurance replacement cost valuations, continued litigation, and numerous carrier insolvencies further harden the Florida CAT Property Market.  Market improvement is not anticipated in the short-term and we have entered peak hurricane season.

Issues contributing to the capacity crisis include:

• Continued litigation that fosters property claims abuse
• Escalation and frequency of named storms and other domestic weather events
• Inflation and increased insurance replacement cost valuations
• Numerous carrier insolvencies

Even amidst these challenging market conditions, opportunities still exist. Associations should continue to take proactive measures to become a better overall risk. The association specialists at Gulfshore Insurance have been successfully protecting community associations throughout Florida for more than 50 years. As an Acrisure Agency Partner, we use our global leverage in the marketplace to secure additional markets on our clients’ behalf, and we have been successful in identifying the very best available combination of pricing, terms, and conditions for our clients despite these challenges in the marketplace.

Property:

• Market instability continues as more domestic Florida insurance carriers fail. This is particularly prevalent in difficult geographies, as carriers continue to reevaluate and de-risk their portfolios by limiting high-risk exposures.
• Reinsurance renewals are affecting carriers’ ability and willingness to take on additional risk. In summary, capacity is down and rates per unit are higher.
• Carrier participation in Florida continues to decline with Weston Property & Casualty, being the most recent carrier to enter receivership. All Weston policies will be cancelled effective 9/7/2022.
• In general, rates are up 25 to 30% on average accounts. For more difficult risks and/or if an incumbent market is not offering renewal, 30 to 100%+ can be expected.
• Certain accounts are being non-renewed due to underwriting and capacity restrictions.
• Carriers are being highly selective with regard to new business placement, which is impacting client’s ability to obtain coverage at a reasonable cost.
• Citizens is becoming the only option for some clients, and they are also declining some business, which is adding additional stress on stakeholders. The policy count with Citizens has exceeded 1M, for the first time since 2011.
• Citizens has introduced a Temporary Market Stabilization Arrangement, to combat the multitude of carriers that are entering liquidation/receivership. This will hopefully eliminate some of the stress stakeholders experience when a carrier enters receivership.
• Most carriers have added Post-Loss Assignment limitations or exclusionary policy forms to their policies. There is disparity form to form so it is important to understand how these forms can limit or exclude coverage.

Crime/Employee Dishonesty:

• Having proper controls in place is fundamental, not only for securing proper coverage, but also to protect the assets of the community.
• Clients, Board Members, and Property Managers should consult with their agent on best practices for this exposure to ensure there is proper coverage at the time of loss.
• Rates are up 10 to 25%. Carriers are tightening underwriting in light of recent losses and general insurance market conditions.

Directors & Officers Liability:

• Now more than ever it is important for Board Members to understand their responsibilities and take the appropriate actions when making decisions on behalf of their members.
• Carriers are reviewing their books and acting on marginal accounts (i.e.. those with losses, high rises, older communities lacking fire protection and/or updates).
• The tower collapse along with property market instability has generated renewed concern for directors and officers who are responsible for making decisions about the inspection, maintenance, and welfare of the association’s buildings and equipment.
• D&O rates are up 10 to 25% on clean, desirable accounts. If an incumbent is non-renewing for any reason, increases of over 25%, and in some case 100%+ can be anticipated. Certain risks will also require a higher Self-Insured Retention. In general, underwriters are tightening guidelines & requiring compliance with state and local statues as regards inspections and maintenance.

CGL/Primary Casualty:

• Most carriers in this space have tightened underwriting or are exiting the class of business.
• There are very few Admitted carrier options for many accounts.
• The Excess & Surplus markets are taking on many risks, with exclusions, restrictions, and limitations in coverage.
• The market is limited for high-rise structures in general and older, multi-story buildings, lacking updates and/or fire protection.
• Rates are up 25 to 30% on average and, on challenging accounts, with loss history or otherwise less desirable, can see 100%+. Obtaining the proper coverage has become a high priority when choosing a carrier, rather than the premium charged.  We are seeing some carriers including high deductibles, water damage exclusions, and other limiting and restrictive policy forms. Reviewing policy form schedules year over year with your agent is recommended.

Excess Casualty:

• Most markets have lost all or most of their capacity.
• A few years ago, many programs were offering limits to $50M or even $100M. Some of the few remaining markets can offer a maximum of $5M or $10M. Layering is becoming necessary to achieve higher limits.
• Excess D&O is becoming increasingly more difficult for certain risks.
• The market is currently inundated with non-renewals.
• Older coastal, high-rise structures lacking sprinklers and/or updates are outside of most underwriting guidelines.
• Short-term rentals are viewed unfavorably and many of the remaining umbrella programs will not entertain this exposure.
• Excess Casualty rates are up. Obtaining high limits ($15M+) may require layering or may be unavailable in some circumstances.
• Working with the right agent is becoming imperative. It is important for board members and property managers to employ proper risk management with the assistance of their agent. Carriers that remain in this space are requiring strict risk transfer mechanisms, such as:

1. Obtaining written contracts from all third-party tenants and service providers.
2. Requiring third parties to carry at least $1M/$2M in General Liability limits.
3. Requiring condo be named as ‘additional insured’ on third party’s liability.
4. Containing language that indemnifies and holds harmless the condo association.
5. Containing Waiver of Subrogation in favor of the condo association.
6. Specifying that the third party’s insurance is primary to the condo association.

Flood Insurance:

• FEMA Risk Rating 2.0 is in full effect with the Statutory Premium Increase capped at 18%.
• There are cases where the 18% CAP increase will be removed. According to the NFIP Flood Insurance Manual 2.0 Equity in Action Edition; “most premiums may not increase by more than 18%, each year, whether at renewal or by endorsement EXCEPT when:”

1. Increasing coverage
2. Decreasing the amount of the deductible
3. Reflecting a change in the CRS discount
4. Policy Form change
5. Completed construction
6. Property address correction (if keyed incorrectly)
7. Certain premium bearing changes that are similar to writing a new policy

Florida called a Special Legislative session in May in an attempt to address and combat some of the ongoing insurance market issues. Senate Bills 2D was passed. Some of the key components of the legislation that passed include:

• Clarifying options for roof repair & replacement

1. Allows insurers to offer policies that include a roof deductible, which would be provided for a premium discount.
2. Exempts roofs built to 2007 standards from a law that currently requires an entire roof be replaced when 25% is damaged.
3. Insurers may not refuse to write or renew policies on homes with roofs that are less than 15 years old only because of the roof’s age. This aspect has drawn some criticism of the bill.

• Funding matching grants for home hardening

1. Extends My Safe Florida Home Program, tax incentives directed at strengthening homes against storm damage, to include Hurricane Mitigation Inspections and matching grants for retrofitting on homesteaded single-family homes with a value of $500,000 or less.

• Reducing frivolous litigation

1. Restricts the application of the attorney fee contingency risk multiplier to rare and exceptional circumstances.
2. Allows insurers to seek attorney fees in cases where a claimant files a lawsuit without first filing a required notice of intent to initiate litigation.
3. Clarifies when a bad faith suit may arise.
4. Preventing AOB assignees from receiving attorney fees.

• Enhancing insurer access to the Florida Hurricane Cat Fund (FHCF)

1. Authorizes $2 billion below the FHCF attachment go to the new Reinsurance to Assist Policyholders Program (RAP). The program is for hurricane losses for one year only, to help reduce the cost of reinsurance.
2. Allow insurers to obtain reimbursement for hurricane losses earlier than they typically would under the FHCF.
3. Requires participating carriers to reduce their rates in a rate filing by 6/30/22. For carriers who have already secured reinsurance for 2022, they may defer using the RAP fund until 2023.

Gulfshore Insurance is a Naples, Florida based insurance agency specializing in business insurance including liability insurance, property insurance, workers compensation insurance, vehicle insurance, business income interruption insurance, cyber insurance, commercial umbrella insurance, and more. Our insurance and risk management advisors are industry specialists for condominium associations, golf and country clubs, oil and petroleum marketers, construction, landscaping, churches and non-profits, and work comp. Navigating insurance requires an experienced and trusted insurance agent who understands your business risks and exposures. Gulfshore Insurance services Naples, North Naples, Marco Island, Bonita Springs, Fort Myers, Sarasota, Lido Beach, Longboat Key, Bradenton Beach, and Southwest Florida. We have office locations in Naples, Fort Myers, Fort Lauderdale, and Sarasota.