Article Courtesy of The Sun Sentinel

By Ron Hurtibise

Published 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.
     

“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 said.

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 interior walls.

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 repairs.
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.

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