Why Your Insurance Premium Just Tripled — and What To Do

Insurance carriers are abandoning New York buildings at an alarming rate, and your co-op or condo could be next. Jason Schiciano, co-president of Levitt-Fuirst Insurance and Bonding, reveals how a 108-unit cooperative saw their premium nearly triple after being non-renewed by their carrier. Learn why insurance companies are walking away from New York buildings and discover the red flags that could put your building at risk. Schiciano shares practical strategies to protect your building's insurability, and reveals why addressing maintenance issues now could save your board from a financial crisis later. Habitat's Carol Ott conducts the interview. 

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Transcript

Carol Ott: Welcome to Problem Solved, a conversation about challenges facing New York co-op and condo board directors. I'm Carol Ott with Habitat Magazine and I'm joined today by Jason Schiciano, co-president of Levitt-Fuirst Insurance and Bonding. Jason, thanks so much for joining me today. 

Jason Schiciano: Thanks for having me, Carol.

Carol Ott: Insurance companies have taken big hits in recent years and many have dropped out of the New York marketplace. They're tightening their requirements, looking at a building's history and present physical conditions, and in many cases, walking away from a client. Jason, you worked with 108 unit cooperative that was facing what's called a non-renewal, which sounds like a polite way of saying, we don't want you as our client anymore.

Is that what happened? 

Jason Schiciano: That's exactly what happened, Carol. It was, not our client at the time, but another broker was handling a co-op and the carrier, which was a stalwart carrier in New York for decades, like many other carriers, have undergone underwriting strategies changes, and because of a number of factors relating to the building, its age, some electrical issues, the size of the building, the construction of the building, the carrier just decided that they no longer wanted to ensure the building. It was too much risk relative to the premium that they were able to collect, so they non-renewed at the renewal 

Carol Ott: date. 

 How did you get involved?

Jason Schiciano: We got involved because the managing agent for the building contacted us. Most managing agents work with more than just one broker. We were a prominent broker for this particular managing agent. The managing agent was made aware of the non-renewal because they got a notice in the mail, which is required, that a carrier, put the insured on notice by mail. But they were not getting any type of comfort or assurance from the incumbent broker that that they were gonna come up with an alternative. And as the renewal began to approach, we were about, I don't know, roughly a month out or so, and the insured had heard nothing in terms of the replacement options. They contacted us and said, Hey we're not getting good vibes here. We're not getting a good feeling this is gonna be addressed. Can you look into this and try and come up with something as an alternative? 

Carol Ott: And what steps did you take to help them?

Jason Schiciano: The first step is to try and understand the reason behind the non-renewal which you don't get a lot of details from the insurance carrier's notice. They're just required to give very basic information as an explanation. So we tried to understand from the client some of the factors of driving the issue.

And in many cases, that just comes from understanding the risk better. So as we got to understand how many units were in the co-op, how old the buildings were, the fact that they were wood frame construction, the fact that there was some fuses present in some of the apartments.

We know all of these are red flags for insurance carriers. Not to mention the fact that it's located in New York, which is no man's land for most insurance carriers to begin with. So once we understood what was going on in the background behind the non-renewal, gave us a direction as to which carriers we would have to approach and how we'd have to go about pursuing a a replacement proposal.

Carol Ott: Now I understand that, correct me if I'm wrong, that the insurance carriers only deal with one broker at a time, so you can't have competitive brokers going to the same insurance company. So how did that work? 

Jason Schiciano: Yeah, insurance companies , I'm talking about every insurance company. I shouldn't say every, but let's just say 99% of insurance companies will only offer a quote to one insurance broker. The reason is it becomes incredibly inefficient and unmanageable. If you can imagine, if, taking it to an extreme a co-op or a property manager can go out to a dozen different insurance brokers and they're all approaching the same insurance company or companies to get a quote on the exact same building, it becomes unmanageable.

There's finger pointing, who got there first, et cetera. The insurance broker that gets the first submission in the first submission into the insurance carrier is generally recognized as what's called the broker of record. So our concern in this case was that we were getting so close to the renewal and the incumbent broker is a competitor of ours.

 We know the competitor and they're a good competitor. They generally do very good work. So we expected that as we went out into the marketplace to look for alternate insurance options that. We would be blocked out because we presumed that incumbent broker would've already made a submission to a number of the insurance companies that we wanted to solicit quotes from.

Fortunately, that was not the case. 

Carol Ott: If that was not the case, then for whatever reason that was going on in that brokerage company, the insurance broker just hadn't reached out? 

Jason Schiciano: Yeah, it's hard to say. They could have been running behind. Maybe they were going to eventually get to where we intended to go.

But maybe they were just overwhelmed for whatever particular reason. Maybe they had an inexperienced account executive on the account that just wasn't getting to the matter as quickly as it should have been addressed. Possible that for some reason, at least the individual at that broker, didn't know the right channels to go to to try and get an alternate quote.

They didn't have the industry contacts or. This was an out of the box situation with this building. It's not a cookie cutter run of the mill renewal where you can go to the standard carriers that everybody knows, Greater New York, Philadelphia, Travelers or what have you to get a renewal. You had to get to some insurance carriers that generally speaking, most people don't associate with the condo co-op market in New York in order to get quotes. 

Carol Ott: I just wanna jump in here. The reason why is because the carrier that they had non-renewed them. So that meant that others were likely to not provide an offer either? 

Jason Schiciano: Yeah, a lot of the names that I mentioned, they all have generally the same underwriting box that you know, that they will underwrite within.

And if something is way outside of that box, as was the case here. You had a number of factors, a play you had the age of the building the, some of the electrical fuse issues, the size of the building, the fact that it was wood frame, all of those things together. Five years ago would've been a different story. But in this day and age, the types of buildings that the standard market insurance carriers are willing to insure has gotten to be a smaller and smaller box. So yeah, just because this one standard line insurance carrier, which happened to be Harleysville Nationwide was non-renewing this account. We knew based on all the factors that I previously mentioned, that all the other standard carriers weren't going to consider it either. 

Carol Ott: So what was your strategy to helping them since you knew that the standard carriers weren't gonna make an offer? 

Jason Schiciano: So we knew that we had to work through what's called a wholesaler, which is a middleman in the insurance marketplace. And wholesalers are able to access insurance carriers and markets that are non-standard. Oftentimes they're known as non-admitted carriers in New York which means that they are not backed by the New York State Department of Financial Services. In the case of a financial obligation, like a claim, if they go, bankrupt during a claim they don't have the backing of New York State to pay that claim out.

So you lose some things by going with a non-admitted carrier, but because they don't have to make as many filings with the Department of Financial Services and they're subject to less restrictions they're often able to be much more flexible with respect to the premium they charge and the types of insurance that they're able to write.

They're able to put different types of exclusions or limitations on coverage, and generally speaking, they're able to take on these types of buildings that are associated with greater risk versus the admitted standard market companies. 

Carol Ott: For the co-op or condo board, those carriers can take on greater risk, but is this greater risk for the association also?

Jason Schiciano: Yeah, to an extent there is, but meaning, you might have a limitation on the extent to which the carrier will cover a roofing claim. Because if the roofs are old in their, let's say wood frame roofs they might have a limitation. If the roofs are more than 15 years old, that they'll only cover a certain portion of a roofing claim, or they may have restrictions, unfortunately, on liability coverage, if there's a contractor worker injury at the building that claim may be limited or excluded depending on the nature of the work, et cetera.

None of these things are favorable, but oftentimes you are left with, that is the only option. And then that was the case here. 

Carol Ott: So for this particular co-op, did you find one carrier who offered it, or what was the outcome? 

Jason Schiciano: Yeah we found a liability carrier to handle the general liability.

And then we had to write the property insurance because the size of the total exposure of all of the buildings together was tens of millions of dollars, in excess of $30 million. Wood burns and wood can jump from building to building when the wind is blowing.

Everybody's familiar with the wildfires that are going on all over the country. We had to write the insurance on the property side with several different property carriers in what's called a layered program which is a little bit more complicated, obviously. Usually you would get a package policy.

It would cover the general liability and the property all in one policy from one carrier. In this case, we had a separate general liability policy and several separate property policies to cover the layering of all of the property exposure. 

Carol Ott: Talk to me about their insurance expense, what they were paying before they got non-renewed and with this layered approach, what they're paying now?

Jason Schiciano: Yeah, it's a tough message to deliver, but they were paying around a $104,000 in total for all of their insurance. And the premium that we were able to get them for all of their insurance was $ 270,000. 

Carol Ott: So that's basically double. 

Jason Schiciano: Well , almost triple. 

Carol Ott: For boards, are there proactive steps that boards can take so that they don't run into what this particular co-op ran into? 

Jason Schiciano: Yeah. I get asked this question a lot and the answer is yes. First and foremost, if a building still has fuses for something called Federal Pacific stab lock circuit breakers, they've gotta replace those fuses and or Federal Pacific stab lock circuit breakers with normal circuit breakers.

That's critical, because there's just no more tolerance anymore for either one of those electrical situations. So that's number one. Number two, buildings, especially when they get a new carrier, the new insurance carrier will come out within a couple of weeks of the new policy being placed, and they'll do an inspection on the whole property.

They'll look at the roofs. They'll look at the sidewalks, they'll look at the hallways, they'll look in the basement. They'll look at everything. And if you've got a property, for instance in the city that's got a bunch of cracked sidewalk outside of it, which are obviously trip hazards, if your mechanical rooms are a mess and unkept.

If you've got very old equipment, HVAC equipment that might cause problems or property loss for the buildings, those types of things generally that relate to deferred maintenance, because boards are all tight on cash and so a lot of 'em are just saying we'll do the roof next year, or we'll do the sidewalks next year.

That's might be a cash management tool that the board has to employ, but the insurance companies don't care. And if they come out and inspect your property and they see any of these issues that I've just discussed-- brick pointing, if there's problems with the exterior brick pointing, which is a local law requirement in New York City and that hasn't been done.

They're not gonna offer an insurance quote, or , if they are the insurance carrier, they're liable to either non-renew the policy, at the renewal date. Or if they've just written the policy, they have 60 days during which time they can get off the policy in the first 60 days if it's a new carrier.

So you need to not defer maintenance. It's hard to say the money's gotta come from somewhere. You gotta raise maintenance fees or raise common charges and get that work done. That's probably the biggest thing. The other thing I would say on the liability side is if a condo or a co-op suffers a liability claim, a lawsuit from a, from an injured worker, that was working at the building where they may have fallen off a ladder or fallen off scaffolding or fallen off a paint can, due to the Scaffold Law in New York that liability is the building's liability 100%. It's not the worker's fault, it's the building's fault. And if the building is not practicing good risk transfer procedures to move the liability exposure away from their insurance policy and onto the contractor's insurance policy. And they end up getting one of those claims and the building's insurance policy has to pay for it. They're gonna be in no man's land for insurance. They will have big problems with their current carrier, probably non- renewing, and then having to go get some company they've never heard of to offer liability policy that's gonna have a bunch of exclusions.

Carol Ott: Okay then. This is all very sobering, but very good advice for other board directors. Jason, thank you for speaking with me today. Jason Schiciano, co-president of Levitt-Fuirst Insurance and Bonding. 

Jason Schiciano: Thank you.