How a $38,000 Upgrade Paid for Itself in a Year

Insurance costs have become one of the biggest headaches for New York co-op and condo boards, and umbrella policies are feeling the squeeze hardest. Sophie Bird, senior vice president at IMA Corp., explains why boards today are buying a fraction of the coverage they once did, and what's driving the market to shrink this way. She also reveals a lesser-known path some buildings are using to secure far more protection for far less money, though it comes with strict conditions most people wouldn't expect insurance to care about. Bird shares a real example of a building that made one targeted investment and saw dramatic savings within a year, along with practical advice on the everyday factors that can quietly disqualify a building from the best options. Habitat's Carol Ott conducts the interview.

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Transcript

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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 today I'm joined by Sophie Bird, senior vice president at IMA Corp. Thanks for joining us today, Sophie. 

Sophie Bird: Thanks for having me, Carol. 

Carol Ott: It's a sad state of affairs for insurance companies doing business in New York today because they are losing money.

There are lots of reasons why, but the bottom line is that they are charging more to those wishing to buy protection, and co-op and condo boards are really feeling this when they go to buy umbrella policies. Sophie, for those who don't know what an umbrella policy is or why boards need to buy it, can you explain?

Sophie Bird: Sure. So an umbrella policy is an excess liability policy that provides coverage in excess of your primary general liability and sometimes your directors' and officers' liability policies. So this is an extra layer of protection for third-party allegations of bodily injury or property damage, whereby someone sues the building or the board for injuries or damage to their property, and in the event those claims go for more than the limits they have on their primary policies, the umbrella comes in and sits in excess of those.

Carol Ott: And for a typical board, how much excess coverage do they need? 

Sophie Bird: Sure. So it varies on the building exposure and then if they have construction or any extra liability at the building at any given time. I'd say if we were to go back, 10 or 15 years, most buildings in the city probably had $100 or $200 million of umbrella coverage.

That's really come down drastically over the past seven to 10 years, and I'd say most buildings now carry maybe around $10 million, some have 25 and more, and there are some buildings even that are just sitting with $5 million because that's all they can afford. 

Carol Ott: All right. Let's talk about cost. I assume the reason people are buying a smaller policy is 'cause the cost has gone up, as I said.

So give me an idea of cost. 

Sophie Bird: Sure. So depending on what program you fit into, if you're in the standard market or in a risk purchasing group, the cost can be as low as, maybe five or $10,000 for five or $10 million of coverage. But if you are in that the standard open brokerage market, as we call it, buildings might be paying as much as $25,000 for just $5 million of coverage.

Carol Ott: All right. Let's step back here and tell me: these two options, the open market and the risk purchasing pool -- what are those? 

Sophie Bird: Sure. So the risk purchasing groups, they've been around for quite a long time, and those are the programs that have been going out of business because of the high cost of claims in New York, so there are very few left.

But those risk purchasing groups allow buildings to buy more coverage at a lower cost compared to the market. They are third-party program managers that go out to insurance carriers and get them to participate in the program. So those programs that are still left, you can get anywhere from $25 to $105 million of coverage at far lower prices than in what we call the open brokerage market, where you're approaching an individual carrier for $5 or $10 million of coverage at a time.

Carol Ott: So I am going to assume that being able to participate in these risk purchasing groups comes with some caveats. 

Sophie Bird: Absolutely. It really comes down primarily to two things: Does your building fit the fire life safety requirements of the program, which are quite strict, and is your building free of violations?

So these programs look at the HPD, DOB, and ECB oath violations, and if you have anything open, it doesn't matter how old or how small or how frivolous, you will get declined from these programs. They take those very seriously. And then from a fire life safety perspective, depending on the number of stories of your building, they might require it to be 100% sprinklered or to have a standpipe system with a central station alarm.

Carol Ott: So if you're a tall building or if you're sprinklered, I guess maybe you're covered. If you're a tall building, your standpipe system is being monitored, I would guess, by a central alarm station. But for the typical six-story brick building who doesn't have sprinklers, what is this central alarm station?

How much does it cost, and does it balance what is needed to get involved in the risk purchasing group? 

Sophie Bird: Sure. So the central station alarm is a building-wide fire alarm system that's hardwired in, and it alerts the fire department if there's an issue. So for some buildings that we've worked with, they have a standpipe system, but they're not fully sprinklered, and they've looked at installing the central station alarm so that they fit the box of these risk purchasing group programs.

We did have one building that installed the central station alarm. It cost them around $38,000. And with that installation, we were able to put them into a risk purchasing group program, and in the first year, they saved about $28,000 in their premium, and they were able to get $10 million more in coverage.

So it was almost a one-year return on investment for the installation of that system. 

Carol Ott: Whoa. And I'm curious, so boards buy the umbrella insurance if they're sued for like a liability, like in the Scaffold Law, if some contractor injures himself and sues the building. What does this have to do with violations or fire alarms?

 I don't really get the correlation. 

Sophie Bird: So it's really a means of them narrowing down the buildings that fit their program. These few risk purchasing group programs that remain are getting inundated with submissions, 'cause they're the low-cost providers that are still there, and it's a means of limiting the number of buildings that fit their program.

And also, the biggest claims in New York are the injury to contractors, those New York labor law claims, or a trip and fall claim on a sidewalk. But when they're looking at the fire life safety, they're really looking at, is this building protected from a, multiple fatality or injury event from a fire?

So you know you had that big Bronx fire where the self-closing doors were propped open, the fire was allowed to spread, multiple people were hurt. They're looking to make sure that these buildings, especially the taller buildings, have the right fire life safety so that people aren't getting injured or dying, God forbid, in the event of a fire.

Carol Ott: And when you said there are few risk purchasing pool organizations left, how many and who are they? 

Sophie Bird: There are primarily two in New York. So you've got the Distinguished Programs Risk Purchasing Group, and then you have there's two programs with the same parent company. So there's the AURA Risk Purchasing Group, and then also PPP, which stands for the Preferred Property Program.

Those have the same parent company. So it's essentially two programs that are out there. 

Carol Ott: And can any insurance broker participate in those programs? 

Sophie Bird: I believe you have to be open with either Distinguished Programs or the parent company, which is JGS, now the Baldwin Group, for the other two programs. 

Carol Ott: So for a board interested in participating in that, and let's just say that they have central alarm but they have violations.

And you said even if they're old, you would be knocked out of these groups? 

Sophie Bird: Correct. So we've had buildings where the Department of Buildings website has boiler violations from 1991, and it's a declination. So until those websites, which it's, a bureaucratic process, it takes time to get those violations cleared on the website, even if you've already done the work and filed the paperwork to have them closed out. A lot of buildings that we work with work closely with their management, and also many of them hire expediters to help get those violations cleared, and that's a process that we like to start with our clients.

We look at those websites around four months before their policy renewal so that we can share with them that information, and they can get to work trying to clear it up if they can. 

Carol Ott: In your experience, how many of your clients have violations? 

Sophie Bird: More than not. It's difficult to find a building in New York City that is completely violation-free.

It's a matter of timing. We try to get it to them far enough in advance of the renewal, and this is something that we've been doing for the past two or three years. So it's not a surprise to the buildings now, and they're working to clear these up. It's also something, if they get cleared up after their policy renewal, it is something we can look to do midterm.

It doesn't have to be done at the natural expiration date. We can look to move them into a program. It's about timing. Are the violations finally clear? Okay, now we're gonna hit submit to the carrier. You're clear. Let's get a quote and get you bound in the program. 

Carol Ott: And if during the course of the year where you've gotten this where you've been able to participate in the program, you get a violation, which is likely to happen, are they monitoring?

Will you be kicked out, or it's looked at at your renewal date? 

Sophie Bird: It's typically just looked at when you're new business and then at the renewal date. 

Carol Ott: Okay. That's a relief. Do you have any advice at the end of this conversation for board directors? 

Sophie Bird: I'd say definitely have a great relationship with your property management firm.

Make sure they're doing everything that they can to keep you violation-free so that you're not ruling yourself out of these programs just by nature of having some violations. And then if you are an older, pre-war building that's maybe nine stories that has standpipes, but you're not sprinklered, it's worth looking into getting that central station alarm installed.

Carol Ott: Okay. Thank you very much. This has been really insightful. I appreciate you participating. Thanks, Sophie. 

Sophie Bird: Thanks, Carol. 

Carol Ott: And just a reminder, Habitat's Problem Solved series dives into dozens of real-world examples of everything from interior design to major engineering projects with cost-saving tips, board-focused strategy, and lessons learned.

If you're a board member with your own story to share, we'd love to hear from you. Please get in touch at habitatmag.com or use the contact details in the monthly print magazine. Thanks so much.