By now, all of you who are Property Managers or Board Members have heard from your Insurance Broker that the industry is dealing with one of the hardest markets that we have ever experienced. Insurance is cyclical and the market can be either soft, normal, or hard. A hard market will generally last 2-3 years which normally would be good news since we are getting towards the end of the third year ofthe current hard market. However, this one does not seem to be going away anytime soon.

What causes a hard market?A hard market generally results because insurance companies have not been as profitable as they would like to be. A driving factor behind this has to do with the increased frequency and increased cost of each natural disaster which results in insurance carriers paying out more money in claims. It seems like every time you turn on the news there is a hurricane that caused worse damage than the last one or a wildfire that is bigger than ever before.

What impact does a hard market have on my premium?Insurance companies tighten their guidelines and won’t offer quotes on a risk that they normally would offer coverage for. For example, deciding not to provide insurance on buildings that have fuses instead of circuit breakers. With tighter guidelines, there are fewer carriers willing to offer quotes on an accountwhich lowers the chances of finding savings.

Jurors are awarding larger claim payouts to victims. It is hard to believe but $1,000,000 is not as much as it used to be and nobody is suing for just a million dollars anymore, they want $5M, $10M, or $25M when something happens to them.

Essentially, the insurance companies forgo premium growth in an effort to return to profitability. As a result of these factors, insureds typically end up paying more in insurance premiums.

Why is this called the “Commercial Umbrella Liability Edition” if you haven’t even mentioned umbrella policies yet?Commercial Umbrella Liability policies are seeing the largest premium increases across any insurance policy. This has to do with a few things. First, the hard market that we just discussed above, and second is the death of Umbrella Programs.

A few years ago you could be a part of an umbrella program where every building in the program each had its own $100,000,000 limit and each building would be paying its own premium- but on average it would only cost about $1,750 per year. Those programs ended and policyholders were left with the decision to keep the $100M limit and pay a lot more for it or lower their limit and still pay more for itthan they had been in the past. Understandably, clients and policyholders were left scratching their heads in frustration. It couldn’t get much worse than this… until it did.

Currently, umbrella premiums are increasing again. Carriers are pulling out of the umbrella market altogether, resulting in policies needing to be replaced by a new policy. These new policies are even more expensive. That $100M policy you had a few years ago is now unaffordable, and you as Board Members and Property Managers are left trying to decide what limit is enough to protect your building. Some carriers are saying that for a $5M umbrella limit their minimum starting premium is $25,000!! That is an extreme but real example of what some of our clients are left with due to the state of the insurance market.

Source: Eric Eggert