An update on the niche’s geographical and market trends, pricing, and claims
What’s the hottest property on the market these days? Condominiums. Forget what you know about single-family homes appreciating in value more than condos. According to a Trulia report that looked at property data in 100 metro areas between February 2012 and February 2017, the median appreciation rate of condominiums outpaced that of single-family homes.
During that five-year period, the median condo market value topped at 38.4%. The median single-family detached home market made it to just 27.9%. In fact, the Trulia report reveals that asking prices for condominiums experienced year-over-year increases, topping 15% in Denver, Miami, and West Palm Beach markets. Overall, prices in 18 of 20 of the country’s largest condo markets saw prices increase faster than those for single-family homes, according to the report.
Such increases, combined with an improved economy, have helped drive more activity within the condo association insurance space. According to Mark McLallen, president of CISA Insurance, there is a surplus of carriers. “It’s driving cheap reinsurance, and a lot of investment capital has certainly gotten the market pretty soft,” he says.
Yet the market is poised for change, says Andrew Branoff, president and CEO of Apartment Insurance Consultants (AIC). “While over the past couple years the HOA insurance market has been generally soft—meaning increased competition and reduction in pricing—many now consider the market to be stabilizing, with pricing beginning to flatten.”
Also, new products are being unveiled, he adds. His own company recently launched a habitational property program, which includes law and ordinance, boiler-machinery, and terrorism, as well as emergency evacuation and relocation expense coverage. Such new coverages will continue to be introduced as the market flattens, Branoff says.
Other new products, he adds, include those to mitigate drone risks. “As the drone technology improves and more drones are in the air, the HOA manager should adopt a drone policy and inquire about insurance coverage,” he notes. “HOA issues being discussed regarding drones involve security, privacy, trespass, and nuisance.”
These new products suggest ample interest and availability of coverage. McLallen says particularly for the larger property risks, such capacity will not be a problem. “We’ve seen in the last six to twelve months, fire-resistive-property rates for non-HPR (highly protected risk) business below five cents,” he explains. “That’s a hundred million of non-HPR business for below five cents.”
Still, he says there are plenty of carriers in the market and, for the most part, association coverages haven’t changed. Except for one other area, that is.
McLallen says that cyber liability is becoming an issue for the condo association market. Electronic theft, he says, is on the increase, and the industry is attempting to understand how much exposure it means for clients.
Branoff says the problem, in part, is theft of data. “Resident and tenant personally identifiable and confidential information stored on computer systems can be vulnerable to hacking and security compromise,” he notes, “possibly resulting in exposure for the property owner and/or manager.”
“The need to replace a roof is one of the single largest expenses an HOA can incur. In addition to having insurance, it is important for HOA managers to conduct regular roof inspections and budget accordingly for repairs to avoid deferred maintenance.”
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Beyond cyber liability, trends in the HOA insurance market are being driven by geographic considerations, says Branoff. “The coastal windstorm market has recently softened, meaning more carriers and capacity have entered the marketplace for this line of coverage, causing pricing and deductibles to reduce. However, the inland windstorm market appears to be holding steady.”
Within frame construction, there are regional pockets of concern. McLallen stresses that in certain areas of the country, convective CAT exposures are making an impact in the market. “There’s still a fair bit of aluminum siding business,” he notes, “and addressing the needs of these small portions of the marketplace continues to be challenging.”
These types of materials are more susceptible to weather damage, he adds. And it’s become more of a challenge than expected. “We, as an industry, are trying to find how to address those exposures,” McLallen says. “The weather patterns haven’t changed much over the last 50 years, but convective claims have. We are trying to figure out how to address the difference between functional damage and aesthetic damage. Until we do, those areas are going to continue to have fewer players.”
Such water-based damage, he adds, creates an underwriting challenge in terms of how to include it in coverage without inadvertently opening up claims in otherwise excluded areas. He likens it to mold and how a water-based risk can be dealt with from an insurance perspective. “We can’t exclude water, but then mold comes from water,” he explains. “Once the standard was created, the risk was manageable.”
When that happens, says McLallen, it will open the market and new players will again appear and give some relief to those carriers, brokers, and insureds with the standardization.
Claims for the most part have remained steady, say the experts. Common claim drivers continue to be those regarding roof damage and replacement. McLallen says the age of roofs and maintenance are posing somewhat of a challenge for insurers. Too many claims come in for older roofs that weren’t necessarily damaged by an insurable event.
Because of that, he says, pre-inspection is a necessity. When looking at covering a risk, McLallen says he looks first at the age of the roof. “If we have a roof that’s five years old, we check that box [and cover the risk]. If we have a manager who doesn’t know how old the roof is or when it was last inspected or replaced, we don’t write it until we go out and look at it.”
It’s important for insurers, agents, and brokers to stress to clients the importance of regular upkeep, adds Branoff. “The need to replace a roof is one of the single largest expenses an HOA can incur. Furthermore, a roof loss can lead to interior water damage and mold. In addition to having insurance, it is important for HOA managers to conduct regular roof inspections and budget accordingly for repairs to avoid deferred maintenance.”
Loss control procedures in general, says McLallen, will remain constant. However, he sees cyber liability as the next challenge for insurers. “In the last eight years, we’ve seen our first electronic theft claim.” That means agents and brokers should be talking with their clients about adding cyber coverage to their crime policies, he says.
With the new risks evolving, Branoff suggests agents and brokers educate themselves on the market and its evolution. “Participate in environmental scanning—which is studying the market on a continual basis to understand changes that occur as they occur; if you are late in identifying a new product or facility, you can lose your competitive edge.
“It is important to know that windstorm coverage and deductibles can vary,” he adds. “Coastal locations will likely have a named storm deductible, in addition to a wind-hail deductible. Deductibles can apply on a per-location per-occurrence basis, on a per-building per-occurrence basis, and on a per-client per-occurrence basis.”
McLallen says the best thing agents and brokers can do right now is slow down. “Because of the softness of the market, and because there are so many carriers in the game, we as an industry get a false sense of speed. We overlook the core underwriting principles just to make sure we beat everyone to the market. When we stray away from our underwriting principles, we get ourselves into claim trouble. Slow down and make sure you know what you’re insuring.”
In a competitive market, Branoff says, agents and brokers need to arm themselves with as much information and knowledge as possible. “It is important to be a salesperson, a relationship manager, and a technician; if you can harness these skills you are well positioned.”
By Lori Widmer
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