By Brad Henderson, Network Insurance Services
It's no secret, the marketplace for habitational insurance is changing rapidly. What used to be a broad offering of insurance carriers and products has now been whittled down to a select few insurance carriers offering products that 10 years ago no one would have thought viable options. The marketplace for habitational insurance today is a hostile one.
Winds of change are driving the property insurance market in this new direction. Hurricane Harvey hit Texas in August of 2017. Harvey was followed by hurricane Irma in Florida, which was followed by hurricane Maria hitting Puerto Rico shortly after. The losses from these storms amount to over $100 billion dollars.
It’s not just hurricanes that are causing the disruption to the marketplace. Wildfires devastated over 1.2 million acres of land in California in 2017. And as we are familiar with here in the Rocky Mountains, hail storms are becoming more frequent and more damaging than ever. Colorado experienced the costliest hail storm in our history on May 8th of last year, with insured losses exceeding $1.4 billion dollars.
With natural disasters on the rise, insurance carriers are taking note (and losses) and adjusting their underwriting discipline to remain profitable. Over the last few years, carriers have introduced percentage deductibles for Wind & Hail losses as a method to insulate them from this catastrophe. The deductible is a percentage of the Total Insured Value of the property, not the value of the claim.
For example, a building with $10,000,000 in Total Insured Value may now be subject to a 2% Wind/Hail Deductible, or $200,000. Many insurance companies have recently announced that they are moving to a mandatory 5% Wind/Hail Deductible on all habitational accounts. That $200,000 deductible just increased to $500,000.
Insurance carriers are also becoming stricter on enforcing a ‘No Grills on Balconies’ underwriting guideline to protect themselves & their customers from life safety claims related to fires. The National Fire Protection Association (NFPA) indicated an average of 8,900 grill fires occur per year in the United States.
These 8,900 fires cause an annual average of 10 civilian deaths, 160 reported civilian injuries, and $118 million in direct property damage. While gas grills may seem safer than charcoal, 83% of grills involved in home fires are fueled by gas. State & local fire codes vary with respect to grilling on balconies, however many insurance carriers are following the standard adopted by the NFPA which prohibits grills within 10 feet of a frame multi-family structure.
While its clear that the tides are changing in the property insurance market nationwide, there are ways to prepare the associations you manage for these changes and insulate them from dramatic changes to their policies.
With respect to the increasing Wind/Hail deductibles, there are a couple of solutions to consider. Depending on the by-laws of the association, there may be little to no flexibility in moving to a percentage deductible. Deductible buy down policies can be put in place to cover the difference in the deductible offered by the insurance carrier and what is required by the associations by-laws. With more flexibility in the by-laws, the tenant’s policies can possibly be structured in a way to offset the assessment to the owners for their share of the Wind/Hail deductible.
Educating the board of directors of local fire codes and communicating them to residents is a proactive way to soften the blow that many who have had grills on their balconies for 20+ years will no longer have that option. Additionally, most insurance carriers will allow for electric grills on balconies as a substitute to their open flame counterparts.
Network Insurance Services has been partnering with property managers and the communities they represent for nearly 20 years. In a chaotic and rapidly changing insurance market, experience makes the difference. Our office is certified by DORA to offer CE Credits to Community Association Managers through our education on these topics in further depth. As one of the Denver Business Journals Top 25 rated Colorado Insurance Brokers and a member of CAI-RMC, we have the resources and expertise to help our customers weather the storm of today’s rapidly changing property insurance market.
