I am sure many of you that purchase insurance for your homeowners association(s) and common elements are asked what can be expected in terms of cost at this year’s renewal. The insurance market as a whole can fluctuate depending on catastrophic losses like hurricanes, 9/11, and other man made or natural disasters that affect the overall cost of insurance. Other factors like tort reform, new laws, and further state or federal regulation can also have a positive or negative effect.
As you are aware, 2004 was a bad year from a natural disaster standpoint. However, since the insurance rates had been so relatively high for the last three years, and the losses had been low, the carriers had a chance to rebuild their reserves and were able, in most cases, to withstand the negative impact of the multiple hurricanes in Florida during 2004. This does not mean that there was no effect, since coastal areas are having insurance placement difficulties, but it simply did not affect the rating structure country wide.
Looking at studies done for renewals in February it has been reported that for the first time in over 4 years renewal pricing is flat on a composite basis. This contrasts with a 9% increase in February 2004 and a 25% increase in 2003. The rates on average for all lines combined continued to decrease throughout 2004. In most cases the property insurance was the line of coverage that was showing the largest decrease from a rating standpoint.
Not all lines of coverage are showing decreases, however. In some cases, general liability and umbrella liability are showing slight increases for “tougher” classes of business. The underwriting community is mixed on where condominium and homeowners associations fall. Some insurance carriers consider the association business to be very good, while some do not want to write coverage for associations.
Coverage for directors and officers is a line of coverage that is still somewhat unstable due to poor claims experience as a whole. Some insurance carriers have had such bad experience with community association D&O that they will not entertain the risk. Others find that the association D&O business is very good. Rating for this line of coverage has stabilized largely due to the fact that there had been substantial increases in the past and carriers are now at a rating level where they can pay for losses and recognize modest profit.
Overall, it appears that pricing in general is stable across the insurance industry at this particular time. This can change due to the factors already mentioned and obviously it is especially hard to predict natural disasters. At this point in time, it appears safe to say that, unless there is a catastrophic event, homeowner associations should see stable pricing through at least year end, 2005.
