At this time last year, we posted our prediction for what would happen with insurance premiums in 2023. Our article began:
The hard market continues. In the midst of one of, if not the worst hard market in the history of insurance, the end is not in sight. Over the past few years, insureds have seen rate increases for a number of reasons. One was the General Liability premiums have increased because of the stringent Labor Laws (specific to New York) and Social Inflation (country-wide) for the most part defined as increased awards by juries for numerous reasons, including distrust of insurance companies, businesses, deep pockets, or just a generational thing. These same factors have affected the Commercial Umbrellas and Directors & Officers Liability policies. Well, the new kid on the block for 2023, and not a friendly one, is going to be an increase in the Property Insurance premiums.
Sometimes, it’s wrong to be right. Here’s what we expect in 2024:
Property premiums will rise. Why? Two reasons:
- The cost of materials and labor has increased recently. The cost to rebuild a building this year is more than last year and can be much more depending on the building, the area, and the current limit. Insurance carriers are increasing building limits, sometimes drastically, to make sure the property is insured to its full value.
- Reinsurance companies have raised their rates. What is reinsurance, and why should you care? Reinsurance is insurance for insurance companies. Most insurance companies don’t take on the full risk, so for example, if a property is insured for $100M, the insurance company may only provide $50M of coverage while purchasing reinsurance for the other $50M. It helps limit/reduce the insurance company’s exposure as they could become insolvent in the event of a major disaster if they don’t have their own insurance. So, when an insurance company has to pay more for their reinsurance, they have to charge more to their insureds. The other option is to provide only $50M of insurance to that property, which would then force the insured to obtain Excess Property Insurance for the other $50M, which will almost always be more expensive. Or, the insurance company can just choose to non-renew coverage, which just means another carrier isn’t available for that risk to obtain a quote from. Much like everything else, insurance is supply and demand. Less insurance companies willing to quote and you can almost guarantee you will pay a higher premium, so in the end, reinsurance is a good thing.
General Liability Insurance
As indicated last year, General Liability premiums have been one of the culprits the past few years. Though the increases have appeared to have leveled off, that does not mean I would budget a lower amount or even a flat renewal! Carriers continue to tighten their guidelines and are reviewing claims more diligently, so your current carrier may not be your renewal carrier if there are any issues and that could result in a higher premium.
Commercial Umbrella Insurance
Commercial Umbrellas were probably the biggest culprit in premium increases in the past few years. Most insureds now have a (much) lower limit at a (much) higher premium than they had several years ago. Sadly, we are still seeing increases in the Umbrellas. They are all over the place. Some are flat, but some are increasing by 15-25%. One of the best things a property can do to help their cause is to close out whatever DOB/HPD violations they have. There are limited programs writing high limits, and the ones that are will decline you if there are too many violations or what they consider to be severe violations. Sometimes they will decline if there are ANY open violations! You can check your DOB violations here and HPD violations here. In addition, their life safety guidelines have gotten much stricter. Adding central station alarms or sprinklers, though costly, could make you eligible for one of these programs and that will generally reduce your Umbrella premium drastically.
Directors & Officers Liability Insurance
Much like with General Liability, there has been an uptick in claims over the past few years. D&O carriers, which typically are not profitable in New York to begin with, have been raising their rates by 10-20%.
Employee Dishonesty/Crime/Fidelity Insurance
It looks like rates will be stable for 2024. You may see a slight increase in premium simply because most limits are based upon three months of maintenance fees, and as maintenance increases, the limit that is needed will increase, which will naturally result in an increase in premium. Being that the premium for these policies is relatively small in most cases, increases are typically easy to handle.
Cyber Liability Insurance
Cyber liability is one of the fastest-growing insurance policies. While the premium for a co-op or condo is relatively low, we’re starting to see increases in this area as well. The reason is we are starting to see more and more Social Engineering claims happening to community associations. Social Engineering is basically being duped into paying hackers. They aren’t stealing the money, you are voluntarily paying them! These claims typically result because a hacker gets into someone’s system and then sends a request to whatever entity pays the invoices asking them to amend their banking information and when the bill is paid, it is paid to the hackers and not the real entity. Cyber Liability policies that include Social Engineering are raising their premiums and Cyber Liability companies who don’t include it are allowing insureds to add this coverage for an additional premium. I would budget a 20% increase in this area.
Overall, for 2024, I suggest budgeting a minimum of a 20% increase in your insurance budget – and if it comes in less than that, everyone will be happy.