Condo insurance may be tougher to get after
Article Courtesy of The Sun Sentinel
By Ron Hurtibise
July 20, 2021
Owners of older condominiums in Florida can expect to
pay more for insurance coverage as a result of the Surfside collapse —
if they can find insurance at all.
The tragedy is already sparking discussions among
insurance experts across the state about how they might be able to get
out of paying for future collapses.
Experts say that condo owners should
brace for higher costs and possible changes to commercial
policies that condo associations buy to cover their
buildings, as well as to policies that unit owners buy to
cover what happens inside their four walls.
With two-thirds of condo buildings in South Florida at least
30 years old, thousands of condo owners will likely be
forced to reach deeper into their pockets, experts say — not
only for higher insurance costs, but also for engineering
reports and repairs that insurers are expected to start
“Before this tragedy happened, condos had problems finding
private insurers,” said Jan Bergemann, who heads a statewide
advocacy group for condominium owners called Cyber Citizens
for Justice. “Believe me, [the collapse] will just increase
the problem and if insurance companies demand engineering
reports, we will see huge problems for these condo
Barry Gilway, CEO and president of state-owned Citizens
Property Insurance Corp., told his company’s governing board
that private-market insurers will use the collapse to
justify dropping coverage of older condo buildings. Condo
associations will be left with no choice but to seek
coverage from Citizens, the so-called “insurer of last
resort,” he said.
The city of North Miami Beach ordered the Crestview
Towers Condominium evacuated after a building inspection report
found it to have unsafe structural conditions.
“We can expect companies to be far more stringent in
their underwriting requirements,” he told the board on Wednesday. “And
that will send more business our way.”
Citizens doesn’t want older condos
If Gilway has his way, those buildings won’t be insured by Citizens
unless owners can prove that they aren’t at risk of collapsing.
He said the company should prepare to tighten its own eligibility
criteria, including requiring associations to submit structural
engineering reports. What the company will need to figure out, he said,
is “how aggressive do we get” in establishing criteria meant to reject
buildings most likely to generate costly claims.
“Can we put in underwriting criteria that are very explicit, for
example, that we will not write a [building] without a full structural
integrity engineering report? Will we need to require a 40-year
certification in order to [cover] a residential condominium? By doing
that, we can stop that business from coming in.”
Citizens will likely require approval from the Office of Insurance
Regulation for any changes to eligibility criteria. In addition, the
state Legislature is expected to look into possible revisions to
condominium laws when committee meetings begin this fall in preparation
for the 2022 session.
Private-market insurers, however, have the flexibility to change
provisions of commercial policies — and even cancel policies in the
middle of policy terms — without prior approval from state regulators,
said Charles Nyce, associate professor of risk management and insurance
at Florida State University’s College of Business. Some companies might
decide to exclude or limit coverage for building collapses, Nyce said.
Private-market insurers, which currently cover all but about 330
commercial condo policies that are in Citizens, could impose
requirements similar to those sought by Gilway, experts said.
“Gilway is correct. A lot of insurers are going to be taking a harder
look at what that risk looks like,” said Kyle Ulrich, president and CEO
of the Florida Association of Insurance Agents.
Insurers will likely require older buildings to submit documentation
showing that they passed local inspections, Ulrich said. They’ll also
insist that condo associations order structural engineering reports and
send copies to them for review, he said.
Biggest cost hikes won’t be insurance
More frequent inspections and engineering reports will cost associations
money that will be recovered from owners. Insurers will be forced to
increase premiums to cover the costs of reviewing those reports.
But the biggest cost increases for owners probably won’t be in the form
of higher insurance premiums, said state Sen. Jeff Brandes, a Tampa-area
Republican who in recent years has been heavily involved in the Florida
Legislature’s insurance reform efforts.
Brandes says the steepest price hikes will result from insurers’
requirements that condo associations make “substantial investments” to
fix any structural defects identified in those required structural
engineering reports. And “they’re not going to write [policies] unless
they have a signed agreement that the work is going to be done,” he
Condo associations will have little choice but to make the improvements
and pass the costs to owners if they want to remain insured, he said.
A potential way to fund repairs
While commercial condo policies that cover building structures are
written by just a few state-regulated insurance companies and
unregulated surplus lines carriers, the most common policies are those
purchased by condo owners themselves that cover what’s inside, and not
outside, a unit, including personal property, bathroom and kitchen
fixtures, cabinets, countertops, plumbing, floors, carpeting and
Those condo policies, which are typically sold by many of the same
state-regulated insurers that cover single-family homes, are required by
law to provide at least $2,000 in coverage for special assessments
levied by condo associations for losses.
The way it typically works is if a condo association’s building policy
cannot fully cover the cost of a repair, the association will bill
owners for the remainder of the repair cost as a special assessment.
Condo owners can recoup that special assessment, up to the limit of
their coverage, from their own insurers.
Coverage for special assessments is meant to pay for unexpected but
minor damage, such as replacing fascia after a hurricane, as well as
liability claims, like a drowning in a community pool. Coverage is
triggered not when the event occurs but on the date the owner gets the
bill for the assessment.
“Routine maintenance is not covered,” said an executive of a
Florida-based insurer, whose president would not authorize him to speak
for attribution. Some insurance industry insiders, the executive said,
are concerned that if increased scrutiny of structural integrity
triggers a tidal wave of required repairs, lawmakers could decide to
require loss assessment coverage to help foot the bills.
“The industry has to look out for a stroke-of-the-pen decree that the
insurer is on the hook for all loss assessments, even problems that
started 30 years ago,” he said. If that happens, he expects many
insurers to stop offering condo unit coverage.
Chip Merlin, president of Merlin Law Group, a Tampa-based law firm
specializing in property insurance litigation, said he’s concerned that
insurers will try to water down or eliminate loss assessment provisions
in all of their policies to prevent it from being applied to structural
Waiting to learn why it happened
Some experts interviewed for this story say it’s premature to predict
how the insurance industry will react to the collapse.
Investigations into what caused it are still in the early stages, and
the insurance industry is waiting for results before making major
changes to coverage criteria or prices, Nyce said.
“Hopefully most companies will want to find out the cause first,” he
said. “This was not a normal event.”
Questions yet to be answered include: Were inspectors not doing their
jobs and certifying buildings as safe? If insurance companies feel
Miami-Dade County was not doing its job, rates in that county may go up.
“There are lots of theories. If it’s determined there were common
construction practices in the 1970s and 1980s that caused it, then yeah,
we’ll probably see rates rise for older buildings.”
Merlin sees the possibility of a different outcome.
With property managers and association boards now prioritizing
maintenance and repairs, one could argue that condo buildings are safer
today than before the tragedy happened, he said.
“If you are in a building and you see cracks in concrete and rebar
that’s deteriorating, you’re going to be asking your board or property
manager, ‘What are we doing about this?’”
Hopefully all of the repairs will make insurers want to cover more condo
buildings “and we’ll see that reflected in lower rates,” he said.