Understanding the Insurance Market to Budget Accurately

Predicting stability in the insurance market has been difficult. Even the most tenured agents have not seen an insurance market like the one we are experiencing now. Insurance premiums are increasing at an all-time high, policy coverages are changing, and carriers have higher expectations for insured maintenance requirements. We hoped rate increases were going to level out. However, carriers tell us this may not happen for another year and most lines of coverage will see increases. Some association coverages are experiencing larger impacts to the overall premium than others. Examples of some of those specific coverages include:

• Earthquake – Reduced purchase capacity is making it difficult for insurers to find full limits with affordable premiums. In some cases, earthquake premiums are increasing 30% and yet the coverage is reduced. Because earthquake coverage is not mandatory, Boards can review different coverage options and may choose a lower limit instead of a full limit.
• Liability – A rise in nuclear verdicts* and overall claims activity has caused premium increases and coverage changes with additional exclusions. Excess liability, also known as an umbrella policy, has seen higher increases and limited availability since the tragic Champlain Towers South collapse in 2021. In the past year, umbrella policy premiums increased about 20%. Communities with higher limits or higher risk activities continue to see larger premiums for liability insurance. These increases can be substantially higher than average.
• Directors and Officers Liability – Lawsuits are on the rise. This increases the risk carriers absorb as they defend associations for allegations of wrongdoing. A few reasons for these increased claims include breach of fiduciary responsibility, election disputes, and discrimination. Regardless of a settlement, defense costs to litigate these claims contribute to the financial impact the insurance carrier assumes. As legal costs increase, insurance carriers are taking on higher litigation costs to defend their insured.

* For more on nuclear verdicts, see the cover article, Changes in the Umbrella Market in ABI’s July 2022 newsletter.