Meeting Your Property's Insurance Challenge

Budgeting is always a complicated affair and increasing insurance costs have made this even more challenging. Jason Schiciano, co-president at Levitt-Fuirst Insurance & Bonding, shares how the timing of insurance renewals can help – or hinder – the challenge, and how boards can work with their brokers to stay on top of renewal timing before budgeting mistakes occur. Habitat’s Paula Chin conducts the interview.

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Transcript

Paula Chin: Welcome to Problem Solved, a conversation about challenges facing New York Co-op and condo board directors. I'm Paula Chin of Habitat Magazine and with me today is Jason Schiciano, a co-president at Levitt-Fuirst. 

Jason, it's a hard insurance market where premiums are rising, coverage is shrinking, and that's been a rude awakening for boards.

Not surprisingly, a lot of them are hit with sticker shock when it comes time to renew. You found that notifying boards early on can help lessen the sting and help them prepare their budgets. You did that recently with a condo board that was facing an enormous hike. Can you tell us what happened there?

Jason Schiciano: I'd be happy to. We actually had several condo boards in a community, all of which had the same common renewal date. And we all know what's going on in the marketplace. You described it correctly: last couple years associations, condos, co-ops, community associations have seen huge increases in their insurance premiums as a result of a number of factors. We we anticipated that this group of boards was going to be in the same situation. And we thought that it would be prudent for our long-term business relationship with these clients, which has already, had a number of years of history.

We thought it would be prudent to, to get them the news early, even though we anticipated it would be negative, and to give them the time to digest it and to react accordingly, in particular with respect to their budgeting. 

Paula Chin: Okay. So this was a group of condos all with the same carrier. 

Jason Schiciano: Correct. Yes. 

Paula Chin: And the same, essentially the same amount of coverage and premiums. And how much were those? 

Jason Schiciano: The premiums collectively ran well into the hundreds of thousands of dollars. We look at it essentially as one, one large account for us since it had common renewal date, and it's all part of the same condominium community-- significant group of clients for us. And the insurance line item on their budget is a significant line item for them.

So a lot at stake for all the parties concerned. 

Paula Chin: Now, what did you do? As you said, you proactively started looking around well before the renewal date, and what did that involve? 

Jason Schiciano: It's not easily done because the insurance industry and insurance brokers like Levitt-Fuirst in particular, the brokers get a bad rap for sometimes providing renewal information not as far enough in advance as the boards and the property managers would like.

Oftentimes renewals are being provided just a few weeks before the renewal, sometimes even less than that if there are extenuating circumstances. But that's driven by and large by when the insurance carriers provide the quotes to the brokers. And then we process it, put in a proposal form and get it out to the client.

 In this case, we did not want to wait until we got the actual renewal quotes. We felt given what we knew were gonna be the factors involved that we reached out to the insurance carrier for the for the package insurance policy, which is the largest portion of the premium.

And we said, look, this is an important client for us. It's an important client for you. There's a history here. Even though we are not going to get quotes from you until, maybe a few weeks or a month or so before the renewal, we need to know where you intend to be on this renewal. We need you to look at it, we need you to underwrite it and at least give us some guidance as to where it's gonna be so we can pass the information along.

And we did that even in advance of two months before the renewal date, we were having these dialogues with the carrier. 

Paula Chin: You mentioned getting negative news. Was it the existing carrier who gave you a quote and how much was that and how does it compare to what's standard out there?

Jason Schiciano: Yeah. Virtually every insurance program for a condo or co-op is increasing in premium, has increased in the last couple years. So we knew it was going to be negative news. We expected it would be a double digit percentage increase, meaning more than 10%. But we were in fact a little surprised when we heard that the premiums themselves were going to be going up by approximately 30%.

Which is, I don't wanna say that's on the higher end because there are condos and co-ops out there that have had 50 and even a hundred percent increases, again, with, with extenuating circumstances involved. But 30 percent's a big increase. And it was a combination of rate increase as well as the amount of insurance or the building limits that were increasing that were driving that.

So that's what we were faced with. But we did know, importantly, we did know that even with that increase, we felt based on our knowledge of the marketplace and our knowledge of rates in general in the marketplace, we still believed that 30% increase would continue to maintain these condos with the most competitive insurance options that they would have, regardless of carrier. We thought the incumbent would be the most competitive. Even with the increase. 

Paula Chin: When you do this kind of effort, do you then, look at other companies, reach out to them and get, a second opinion, a second price in the hopes of getting a better deal?

Jason Schiciano: Absolutely. That's, one of the key responsibilities of a broker is to gain a sense that the that the client's insurance program overall presents the most value. So it's really important to understand that, it's easy to go out and get a cheaper insurance policy.

The easiest way to do that is you can just, you can strip down coverages. You can eliminate coverages, you can reduce the amount of coverage. There's a lot of different ways to play games with insurance, or you can go out to insurance companies that you know are not AM Best A rated, that are non-admitted companies.

There's numerous ways to get cheaper insurance, but we felt that this program , the incumbent program, represented the best value to the client, but we absolutely went out and double checked, got feedback from other carriers, and it confirmed what we expected: that the incumbent carrier was in fact going to be the best option despite the increase.

Paula Chin: Jason, what's a non-admitted carrier? 

Jason Schiciano: A non-admitted carrier is a carrier that is not admitted by the state in which they are doing business. When you are an admitted insurance carrier in a particular state like New York, it means that the, in this case, the New York State Department of Financial Services, will provide financial backing or financial guarantee to the insurance company and its policy holders in the case that the carrier becomes insolvent and is unable to pay claims.

So an admitted carrier is very preferable because it gives the insured some guarantee and confidence that, that insurance company will be able to pay a claim even in the event of insolvency. Non-admitted carriers , the name is a bit misleading. A carrier can be non-admitted and still sell quality insurance in New York State.

 In many cases, depending on the circumstance, if a building has had a bad fire or numerous losses, you may not be able to get an admitted carrier to insure you. You'll have to go with a non-admitted carrier. It could still be quality insurance, but admitted is always preferable if it's available.

Paula Chin: Lower risk, and with the lower risk comes less service or less coverage. Tell me, what kind of coverage did you want for these buildings? 

Jason Schiciano: These buildings have a very comprehensive insurance program. Their buildings are properly insured to full replacement costs. They have business income coverage.

That's very standard. They have liability coverage, general liability and umbrella liability. But some of the ancillary coverages made this program very comprehensive. We have flood insurance, we have earthquake insurance. We have underground water insurance.

We have sewer and drain backup coverage. So it's a very comprehensive package insurance policy that we felt we wanted to maintain those coverages. And the condo boards did as well. And again, we thought even with 30% increase it was going to be a competitive program. But the key was to meet, to meet in person with these boards, which is what we did.

We met with them about 60 days in advance of the renewal and conveyed this information in a very detailed manner. 

Paula Chin: And how did they react? How bad was the sticker shock? 

Jason Schiciano: It was tough news to hear, but we were very careful to explain first of all the market forces driving the increases. That would be the things like reinsurance rates increasing way into the double digits the last couple of years. The inflation in our economy in general, driving up labor and material costs, which increase construction costs, which of course means that you have to have more insurance to represent the full replacement cost of a building.

More insurance, higher building limits drive up premium. Older construction is harder to find insurance companies that are willing to ensure older buildings. And these buildings were older. There were a number of other factors. So we explained the market factors driving the rate increases.

And then we also explained as we were just discussing here. We were confident that despite the increases, the program would maintain its competitiveness in the marketplace. The fear of dropping information like that so far in advance if you're an insurance broker, is that your condo boards are gonna, run to their property managers and say, call up other insurance brokers right away. Let's get some other quotes in here. But apparently, we did a, sufficient enough job of explaining what was going on, why it was happening and the fact that we, assured them that we would do our due diligence to make sure that we got, feedback that their program continued to be the most competitive in the marketplace. And again, it must have been the information must have been processed well because we were able to keep all of the business that we had despite these increases. 

Paula Chin: How did you convey this information?

That's a lot. 

Jason Schiciano: Yeah. And, these associations, the boards and the unit owners are primarily retirees. It's not like they are, in the business market and hearing about insurance premiums going up on a daily basis. So it was relatively new information for them. On the flip side, you can't get into too much high end detail, with terminology and information that they're probably not gonna understand 'cause it's not what they do day to day. It was a combination of providing a written synopsis, a written overview of what was going on and why it was going on, bullet point information, and then conveying that information verbally. We actually had breakfast meetings and much like this, we had a conversation about it. There were a lot of questions. We addressed the questions and then there were some questions even after the meeting. Of course we addressed those and we felt that doing this in person was critical.

Because we have a track record and a history of frank communication with these associations as we do with all of our clients. It's a key component and we felt we had to maintain that that level of communication, despite the fact that this was tough news to deliver.

Paula Chin: Once the board accepted the 30% increase, did that help them in terms of their budgets? 

Jason Schiciano: Yeah, that was a key reason for knowing that we needed to get this information out early. In this case here these renewals happened to come up in November. And these associations have budgets that are on a calendar year basis.

So they were in the midst. If we had waited until, late, late October to communicate the information, their budgets most likely would've been put to bed and they would not have been able to react as well. But giving them the heads up 60 days in advance of the November renewal date was plenty of time for them to adjust their budgets accordingly. I'm sure that many of the associations had to make the unpopular move of increasing their common charges to pay for these increases. But they had time to do it and time to explain it to the unit owners that they represented.

And that was why we wanted to get the information out when we did. And I think that despite the bad news, they appreciated the time to have to be able to react and account for these increases. 

Paula Chin: Jason, what would you say the takeaway here is for boards? In other words, they need to be proactive too, to make sure that their broker does this.

Is that right? 

Jason Schiciano: I think it's helpful for boards to know that in this environment, there was a lot of attention on this particular renewal because A, it was a large renewal. B it involved several related condominium associations. We handled it in a bit of a unique way, but the premise and the concept still applies on a single condo association or co-op. There's not a lot of us that do what we do in the condo, co-op marketplace in, in the New York area. We have good competitors and we're all trying to do the best we can, but it does not hurt for a board either through their property manager, what have you, to reach out to the broker and say, Hey, look, we've, we know that this is a tough marketplace.

We're expecting a renewal, but, can you give us some guidance ahead of getting us the actual proposal so we can start preparing? And a broker obviously is gonna do their best to convey with as much detail and specificity as possible the right information back to the board upon getting a request like that.

Paula Chin: Jason, I think this is great information for our listeners. Thank you so much for joining us today. 

Jason Schiciano: It was my pleasure. Thank you for having me.