For many 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 increase or decrease your association’s budget. Below, we are breaking down what you can anticipate for the remainder of 2019, including current renewals, and as you begin the budget planning process for 2020.
Property/Hazard Insurance Rates:
For the past several years, beginning in 2014 and continuing through 2018, we have generally experienced decreasing property premiums and improved coverage terms. This type of environment is known as a “soft” market. By the end of 2018, the property market began to show signs of firming. That continued into the first quarter of 2019. This trend has continued through the second quarter and appears to be accelerating more significantly than initially expected.
Adverse loss development from recent catastrophic events and an increase in the cost of reinsurance have been catalysts for this acceleration. Two consecutive years with combined loss ratios exceeding 100% has heightened the focus of management and underwriters to reduce aggregate exposure and increase rates.
In addition to rate increases, we are witnessing tightened risk selection, reduced capacity, increased deductibles, and policy form revisions. Some carriers are approaching New Business and Renewals differently and might be more aggressive offering a New Business quote vs. a Renewal quote, for essentially the same risk. Insurance carriers are utilizing a level of underwriting discipline we have not seen in a while.
- At this time, our recommendation would be to budget for an increase of 10% to 30% for rates, and 5% to 10% for appraisal increases.
- For coastal communities with losses and/or older structures, you should anticipate an increase on the higher end of this range.
Ancillary Coverage: (General Liability, Crime, D&O, Excess Liability)
We continue to expect these lines of coverage to remain relatively “flat” with the exception of General Liability and Umbrella. Due to adverse loss experience (severity and frequency), compounded by water damage subrogation claims from Personal Lines carriers, some carriers are pricing themselves out of this market. Others are adding restrictive endorsements, such as a Weapons/Firearms Exclusion, which basically forces agents to move carriers.
- We recommend that you budget for a 10% premium increase for General Liability and Umbrella.
Flood Insurance Rates (NFIP):
As of April 1, 2019, there were changes to the NFIP that will affect both new and renewal policies.
- Base premiums will increase an average of 7.3% after surcharges and fees. (As always we caution not to use this 7.3% to estimate any specific policy increase as this is an average of the NFIP’s many varying rate increases and policy types.)
The National Flood Insurance Program (NFIP) just announced changes effective April 1, 2019 and January 1, 2020. The changes outlined below apply to new business and renewals that will become effective on or after April 1, 2019. The premium changes for Preferred Risk Policies (PRPs) and Newly Mapped procedure policies will become effective January 1, 2020.
Premium Increases and Surcharges
Average increase of 7.3%. These amounts do not include the HFIAA surcharge or the Federal Policy Fee (FPF).
For policies issued on or after April 1, 2019, there will be no changes to:
- Deductible Factors
- Federal Policy Fee
- Reserve Fund Assessment
- HFIAA Surcharge
- Probation Surcharge
Pre-FIRM Subsidized Policies (a group of policies in SFHA Zones A, AO, AH, A1-30, AE, A99, AR, AR/A1-30, AR/AE, AR/AO, AR/AH, AR/A, V1-30, and VE, that receive rates insufficient to pay the anticipated losses and expenses for that group)
- Other Pre-FIRM Subsidized Policies Not Subject to 25% Annual Increases: These are primarily condominium policies and multifamily policies. Premiums will increase 9%, with a total amount billed increase of 8%.
V Zones (coastal high-velocity zones)
- Rate increases are being implemented again this year as a result of the Heinz Center’s Erosion Zone Study, which clearly indicates that current rates significantly underestimate the increasing hazard from steadily eroding coastlines.
- Post-FIRM V Zones: Premiums will increase 6%, with a total amount billed increase of 6%.
A Zones (non-velocity zones, which are primarily riverine zones)
- Post-FIRM A1-A30 and AE Zones: Premiums will increase 4%, with a total amount billed increase of 3%.
- AO, AH, AOB, and AHB Zones (shallow flooding zones): Some policies within this rating category will have premium changes; however, for the entire category the average premiums and total amount billed will remain unchanged.
X Zones (zones outside the Special Flood Hazard Area)
- Standard-Rated Policies: Premiums will increase 1%, with a total amount billed increase of 1%.
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The growing use of drones by consumers across the U.S. is leading to the adoption of new rules and restrictions by not only government, but also private organizations such as community associations. Questions regarding safety, property damage, and privacy abound with drones, and associations are responding by establishing clear parameters for their use by unit owners.
Can associations prohibit drones from flying over their property? If a drone operated by an owner or a business falls on another owner’s car, will the board be liable for the damage? Should boards themselves use drones to patrol common areas and spot rule violations? If they do, how should they manage the information and images they collect? How will boards balance the privacy concerns of owners and the desire of others to operate drones and/or have them deliver pizzas and packages to their homes?
These are just some of the questions boards will have to address. While it is too soon to offer definitive answers, a few preliminary observations may help frame the issues.
- Boards have the authority to adopt rules banning drones in common areas, and some association attorneys think they should do so proactively. Their concern: Boards that don’t control drones now may lose the ability to do so if federal or state laws or regulations broadly permit their operation.
- Instead of banning drones entirely, which will upset some owners, boards could consider regulations limiting their size or specifying where and when they can land in common areas. Although associations can’t ban the ownership of drones, they can prohibit drones from flying within a specified distance of owners’ units or require drone operators to obtain permission from residents before photographing them or their property.
- The liability concerns surrounding drones will be large and complicated. Insurance companies are just beginning to evaluate the risks and opportunities in this emerging market. Boards should check with their insurance agents to determine what their existing policies cover and what additional coverages they may need.
- Even if boards aren’t yet ready to act, they should start discussing policies, procedures and regulations governing drones before they begin fielding the inevitable questions, complaints and law suits related to them. Two years ago, we would have said that drones are coming. Today, we have to say, they’re here. The challenge for community associations is finding ways to live with them.
If an association concludes that it wishes to permit the operation of drones in the community, it should consider the adoption of rules and restrictions to help ensure safety. These include the establishment of designated take-off/landing sites, restricting their use to daylight hours, developing penalties for violations, and clarifying that the association is not liable for any property damage caused by these aircraft. Additionally, the association board or management should consult with its insurance agent or consultant to confirm that it is adequately insured with regard to the risks that may be presented as a result of the use of drones at the property governed by the association.
Recently, Legionnaires disease hit the headlines when an outbreak occurred at a southwest Florida condominium. Many community associations are now asking whether they have the proper coverage in place to protect themselves if a similar situation were to occur in their neighborhood.
What is Legionnaires Disease:
Legionnaires disease is a type of pneumonia caused by legionella bacteria. Legionella is a type of bacterium found naturally in freshwater environments, like lakes and streams. It can become a health concern when it grows and spreads in human-made water systems like showers and faucets, cooling towers (air-conditioning units for large buildings), hot tubs that aren’t drained after each use, decorative fountains and water features, hot water tanks and heaters, and large plumbing systems. The disease doesn’t spread from person to person. Instead, Legionnaires’ disease is contracted by breathing in mist, steam, or vapor that has been contaminated with the bacteria. “One example might be from breathing in droplets sprayed from a hot tub that has not been properly cleaned and disinfected,” reports the CDC.
How to Protect Your Association:
When people are infected with legionella from an establishment, its owners and/or operators can be held liable for victims’ physical and financial suffering. Since just one uninsured lawsuit can be enough to cause financial jeopardy, having Environmental Impairment Liability insurance should be considered a cost of doing business. General Liability (GL) coverage for community associations broadly excludes pollutants and bacteria; therefore a standalone Environmental Liability policy is needed to supplement these exclusions. Environmental Liability coverage is broadly available and generally inexpensive, however forms vary greatly from one carrier to another and not all policies cover this exposure. It is therefore very important that you review the policy terms and conditions with your Client Advisor to ensure that there are no exclusions for this exposure from your policy,
These outbreaks again illustrate why communities need to do their best to prevent illnesses from the legionella bacteria, and be properly insured in the event that they occur.
Update: Governor Rick Scott recently signing SB 841 into law that makes additional changes to the website requirements added to FL Chapter 718 in 2017. The bill includes an extension of the deadline from July 1, 2018 to January 1, 2019. You can download a copy of the bill from the Florida Senate website here.
Posted Earlier: By July 1, 2018, a Florida condominium association with 150 or more units (which does not manage timeshare units) must have an independent website or web portal wholly owned and operated by the association or a website or web portal operated by a third-party provider.
At present an association with less than 150 units is not required to comply with the new statute; however, it is possible for this to change at any time. It is important for impacted associations to start evaluating options for compliance sooner rather than later.