Page 17 - New England Condominium February 2020

NEWENGLANDCONDO.COM NEW ENGLAND CONDOMINIUM -FEBRUARY 2020 17 185 Devonshire Street, Suite 401, Boston, MA 02110 Quality Representation at Reasonable Rates. (617) 988-0633 Contact Attorney Frank Flynn: FRANK@FLYNNLAW-NE.COM Flynn_E4C.qxp:Layout 1 12/8/14 2:30 PM Page 1 Quality Since 1974 • AGED DARK • AGED BLACK • MIX • HEMLOCK • WOOD CHIPS 1431 Bedford St. Abington, MA02351 Bus: 781-878-3351 r.a.piercetrucking@gmail.com www.rapiercetrucking.com there is a building insured for $50M, an insur- ance company may not want to take on the full exposure, so they may only directly insure $25M of it, and will purchase the other $25M from a reinsurance company. Currently, they are unwilling to use their own capital, so they are purchasing more reinsurance – and so the reinsurance costs have increased. In addition, the replacement cost of build- ing materials like brick, wood, cement, etc. has increased. Insurance companies are look- ing closer at what the actual replacement cost of a building is, and are finding that many buildings are underinsured. Whereas this may have been OK in the past, as the thought process may have been that total destruction was unlikely – especially on multi-building complexes or fire-resistant buildings – now companies are requiring buildings to be in- sured to their full replacement value. They also have more accurate software these days that can better determine the actual replace- ment cost. So property limits are increasing. Liability and Labor Law Reinsurance is just one component con- tributing to the current hard market. In the liability arena, slip-and-fall verdicts continue to rise – and some carriers are not writing in certain jurisdictions anymore, because while a property itself may be an excellent risk, the jurisdiction it’s located in may be unappealing for less tangible reasons. An underwriter from one of the insurance companies we use indicated that “Continued multimillion-dollar judgments driven by sympathetic juries and social inflation – de- fined generally as rising costs of insurance claims resulting from societal trends and views toward increased litigation – broader contract interpretations, plaintiff-friendly le- gal decisions, and larger jury awards are all playing a large role in carriers increasing pre- miums.” In addition, in some markets labor laws are extremely unfriendly towards property owners, who are almost always held respon- sible for injury to a contractor or employee of the property. Unless all I’s are dotted and all T’s are crossed (and sometimes even when they are), the property owner is held responsi- ble – and the judgments can be astronomical, easily reaching seven figures. The president of one of the insurance companies we deal with recently indicated that in just the past seven years, they have had more labor law claims that have exhausted the $1M policy limit than they had in the previous 40 years combined. Also, in response to grim social trends, active shooter claims have increased dramatically. It’s Hard Out There... Market conditions are wreaking havoc in the commercial umbrella arena as well. Whereas rates used to be extremely low for high-limit umbrellas of $100M or $200M, the risk purchasing groups that write them have had difficulty renewing their programs at rates anywhere near expiring. In addition, some of the programs are losing layers, so what was $100M limit last year may be $50M this year, at a higher cost. One of the largest program managers has been offering renewal quotes on umbrellas that are about 400% higher! According to Robert G. Mackoul, Chief Underwriting Officer of New Empire Group, a program manager specializing in commer- cial umbrellas for community associations, “Judgments...are getting larger and larger, and carriers are running scared. The ones who are still around are raising rates by leaps and bounds. Others are exiting the market entirely. The long and short of it is that the umbrella market rates are starting to rise, and may eventually get to the level of the standard market rates that have traditionally been for larger or tougher-to-place risks.” Standard market rates are generally $500 to $1,000 per million of coverage. These days a 100-unit building can get a $100M umbrella policy for $5,000 to $6,000. Imagine only be- ing able to get $10M for that same cost? Because premiums are increasing, more insureds are shopping – or ‘remarketing,’ in industry parlance – their insurance. Both standard and wholesale carriers are seeing increased submissions. One underwriter I spoke with said the submissions she has re- ceived are up approximately 30% in the last few months, and she’s overwhelmed. This is allowing underwriters to be more selective in their risk selection. In addition, because less standard markets are willing to provide a quote, insureds are getting quotes from excess and surplus lines carriers through wholesalers, which tend to have higher premiums. Sarah Dolce, one of our Senior Account Managers says she has noticed “significant increases from not only our direct markets, but from excess lines car- riers through wholesalers as well.” Vanessa Pupa, another of our Account Managers in- dicates that “Insureds on the low end are see- ing five to seven percent increases, but many are seeing 10 to 15% on their renewals. If the property has unfavorable claims history, the insurance company is either canceling cover- age or raising the premiums substantially, tak- ing a take-it-or-leave-it stance.” This is causing many insureds to remarket their insurance – but there simply is no place to go. Courtney Ferretti, another of our Senior Account Man- agers concurs adding that “The carriers are tightening up their guidelines, which makes it harder to place business.” I tell everyone I talk to, if you are budget- ing flat for your insurance premiums in 2020, you are making a BIG mistake. Budget 10% at the very least. If the insurance premiums come in less than 10%, you’re ahead of the game. As mentioned above, risks with losses or issues, such as the building containing Fed- eral Pacific Stablok panels, which are known to be defective, may see more than 10%. Eventually, the market will soften again, but I would not plan on it happening in 2020. n Ed Mackoul is the Owner and President of Mackoul Risk Solutions in Island Park, New York. PARSING... continued from page 1 that everyone fears – as high as 10-30% – to be used towards major repairs and replacements, or improvements that have long gone unattended to. While low maintenance or common charges are of- ten a very attractive selling point, a well- run building with appropriate reserves is equally – if not more – attractive. Any buyer should be concerned if a building or HOA’s maintenance is materially lower or higher than that of comparable build- ings. An artificially low maintenance may mean the building is putting off doing things it should be doing – or that an in- crease or large assessment is just around the proverbial corner. “An artificially high maintenance may also mean a few things,” he continues, “including that the building has taken on projects or has been hit with unexpected costs. Or it may mean that the board is making up for years of financial neglect. If you’re a buyer or a shareholder, it’s important to get your hands dirty and go through the books and records to find out why. You want to make sure the building is financially healthy.” How Charges Affect the Sale-ability Units The experts interviewed for this ar- ticle all cited fees as a factor in the sales value of apartments in co-ops, condos and HOAs alike. Sharon Shahinian is a broker with Halstead Properties in Hoboken, New Jersey, and says that while this is certainly true, how much of a fac- tor fees represent “Depends how much the buyer wants the property. When the monthly fees and taxes become too much to handle on top of the mortgage, then the buyer will most likely not move ahead. If money isn’t an object, then they will. When a condo lists low monthly charges, sometimes the look of its common ar- eas reflects this. With a healthy monthly charge, the common areas tend to reflect a well-kept building. The amenities also come into play. The more amenities a community has – such as a doorman, a MAINTENANCE... continued from page 12 gym, a pool, and so forth – the higher the monthly costs. I would personally rather pay a higher monthly charge and have my building look and operate nicely – but of course it’s difficult to give a specific fee threshold past which a buyer would not want to move forward, since financial situations are so subjective and personal.” According to Hakim, “Any apart- ment with unusually high maintenance will customarily sell for a discount rela- tive to a comparable apartment” with lower fees. On top of that, he notes that “Buyers will take notice when the main- tenance is not relatively comparable to other, similar buildings. First-time and continued on page 18