INSURANCE PREMIUMS ON THE RISE
By Michael J. Wolfe, President - Midboro Management

After years of minimal rate increases, and in some cases substantial rate decreases, the commercial property & casualty insurance market is currently experiencing dramatic premium increases. These increases can vary from as little as five percent to 40 percent or more.

Contributing factors include industry underwriting losses. Several catastrophes, such as hurricanes, floods, earthquakes and now the terrorist attack on the World Trade Center, have or will result in enormous settlements on the part of virtually every major insurance carrier. In addition, reduced capacity on the part of reinsurance companies plays a huge role in determining the rate structure for most commercial property and liability policies. During much of the 1990's, reinsurers had an excess of dollars "chasing" insurance premiums, creating a soft market with respect to rates. This excess has since dried up.

Recent poor investment return has had an impact on the market, as well. Insurance carriers had previously assumed significant profits on invested premium, which often offset underwriting losses. As the equity markets have declined, the combined performance of virtually all carriers has suffered.

In addition to the rate increases, insurance carriers are re-evaluating building replacement costs and increasing insurance limits to reflect more current replacement costs. This, too, will have a significant effect on premium increases.

In consideration of these market factors, we at Midboro are recommending that properties take all possible precautions to maximize loss control and risk management. Loss control measures should include maximizing safety on the premises for all residents and employees to reduce the possibility of bodily injury and property damage claims. Safety should never be taken for granted and management should exercise precautions with all building activities from routine lobby floor waxing to outside contractor renovations.

Communication between property management, Boards of Directors and all residents must be strengthened to minimize the possibility of Directors & Officers liability claims. These types of claims may be easily avoided with proper direction and education.

Moreover, it is paramount to encourage residents to secure the appropriate homeowners coverage. This will reduce the exposure to the co-op or condo for direct property damage and litigation where there is no negligence on the part of the property. Because many apartment owners do not carry such insurance, it is management's responsibility to educate all residents to the necessity of having such insurance in place to protect all parties. We suggest enclosing an informational flyer with the monthly maintenance bill to instruct residents on the importance of homeowners insurance. Or if a building has a monthly newsletter, including an article that explains the minimum amount and type of coverage available is also effective. In most cases, this coverage is not expensive and easily obtainable.

Always obtain Certificates of Insurance from all contractors working on the premises, specifically naming the co-op or condo, property management firm and individual unit owner as additional insured. No work should be allowed in any part of a building, whether it is in the common areas or individual apartments without proper coverage verified and securely in place.

We also recommend that the Board or Association not sacrifice important coverages to reduce insurance premiums. This could result in uncovered losses, which can prove catastrophic to the corporation. The following comprise a list of coverage recommendations.

· Maintain high limits of liability.

· Use insurance companies with acceptable financial ratings and comprehensive coverage forms.

· Do not accept lead paint liability exclusions or other gaps in coverage.

· Purchase environmental liability insurance to cover exposures recently excluded from commercial package policies.

· Work with insurance professionals who specialize in commercial/habitational insurance and are thoroughly familiar with coverages, terms, conditions and markets available.

Those properties with favorable claims experience will be in a position to negotiate the most competitive rates available. Combining safety precautions, due diligence in all aspects of construction and rehabilitation projects and careful monitoring of liability exposure should result in a minimum of insurance claims against the property, management company and owners.

Midboro Management, Inc. was founded in 1963 and is responsible for the management of 58 cooperatives, condominiums and rental buildings in New York City. Midboro is a NYARM management company member with offices at 1926 Broadway, #604, New York, NY 10023. Mr. Wolfe can be contacted at 212-877-8500, emal:mwolfe@midboro.com.


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