Even before legislative proposals to reform condo safety post-Surfside died on the doorstep of the Florida House last month, a reaction was brewing in the marketplace.
But the failure by lawmakers in Tallahassee to respond to the partial collapse of Champlain Towers South that killed 98 people last June has further inflamed an exodus of insurers no longer willing to underwrite policies in an increasingly risky Florida condo marketplace, according to interviews with industry experts, analysts, academics and attorneys.
The retreat by insurance companies has left the condo associations steering aging buildings up and down the Miami area coastline and throughout the state to deal with insurers in the lesser-regulated surplus market, for customers that can’t get standard policies because the potential loss is unacceptably high. How high? In the case of Champlain Towers South, Great American Insurance Company announced it would tender its full policy limits and additional payments totaling more than $30 million. The upheaval is translating to massive price hikes on premiums and swiss-cheese carve-outs for policyholders.
Condo associations are having a hard time getting their pre-Surfside policies renewed, forced instead to sift through estimates for less protective plans that cost twice as much, or higher. Those lucky enough to renew their policies are doing so at 30% to 50% premium increases, according to market experts.
Those cost increases are coming on the heels of new lending restrictions.
“Where the Legislature failed to provide guidance and requirements, the insurance industry and mortgage lenders have picked up the slack and ran with it,” said Bill Sklar, an adjunct professor at the University of Miami School of Law and chair of the Florida Bar’s Surfside task force.
Robert Munchick, a Miami Beach native who works as an insurance broker and serves on his condo board, has for years been in charge of securing insurance policies for his association to cover the aging Mid Beach building on the coast.
Last year, Munchick said, the condo association benefited from a two-year rate guarantee that followed pre-Surfside renovations: impact windows, concrete restoration and a new roof. But those upgrades only go so far after the collapse.
The insurance company Munchick’s building used for the association’s main policy left the market after Surfside, he said. Several others have as well, according to industry experts.
“The marketplace is horrible,” Munchick said. “Insurance companies are picking and choosing what buildings they want to insure … companies might not want to write on the ocean anymore.”
Munchick said he had previously locked in an umbrella policy that provided $25 million of protection for general liability — basic, slip-and-fall type events that happen in common areas — as well as protection for decisions made by directors and officers. It cost the association about $5,000 per year. This year, Munchick said he received a $53,000 quote for an annual policy that had a $5 million limit just for general liability.
“I’m very frustrated with [state lawmakers,]” Munchick said. “I don’t understand why they didn’t pass some of those measures … but I’m not surprised.”
Others in the industry say they were surprised. But, as Kyle Ulrich, president of the Florida Association of Insurance Agents put it, “the private market will always respond.”
“The companies that write condominium master policies, that market has been troubled for quite some time — there’s very little competition in that marketplace,” Ulrich said. “There could be as few as half a dozen carriers actively writing business in the state of Florida. So when that line has something happen to it, an event like Surfside, it naturally can spook those carriers, and there will be a reaction to it.”
Condo associations are required by state law to have adequate property insurance, which covers structural damage from things like storms, wind and fire damage. Separately, most condo associations have bylaws stipulating other insurance requirements, such as general liability, directors and officers insurance (which protects people who make decisions for the board), and flood insurance (not covered by property).
The property insurance market for condos in South Florida has been dismal for years, said Ciara Gravier, a Fort Lauderdale insurance agent. But since Surfside, the malaise has spread to other types of condo insurance.
It amounts to a new condo tax, Gravier said, an industry-wide response to problems that have been put off for too long.
“We’re now paying for the lack of upkeep in the condo market,” Gravier said.
There are more than 1.5 million condo units in Florida, and more than 922,000 of them are already over 30 years of age, according to state data collected by Sklar, the UM professor, for the Surfside task force. More than 60% of them, he added, fall in parts of the state that have no maintenance or inspection standard.
To that end, the Florida Bar’s task force made recommendations for policy changes in four areas: inspection and maintenance requirements, as well as rules for more transparency and non-waivable condo reserves.
The House and Senate agreed in principle on all but requiring condo associations to replenish their reserves within a certain time frame, according to Sklar, with the House wanting to ramp the requirements up and the Senate fearing it would put a huge financial strain on associations, leading to bankruptcies and insolvencies. Result: nothing was adopted.
Despite the disagreement on reserves, lawmakers could have still passed some of the other measures, such as inspection requirements and transparency laws, Sklar said. That, he added, “would have sent a clear resounding message to the insurance industry” that the Legislature was taking the issue seriously and helped stabilize the market.
“The failure to pass that Legislation sends a message of uncertainty, indecision,” he said. “That’s what the marketplace doesn’t like.”
Legislators look the other way
Lawmakers plan to gather in May for a special session in Tallahassee to deal with a separate crisis involving homeowners’ property insurance, but at the moment condo rates are not on the agenda.
That the condo issues aren’t yet being put on the table is “very concerning,” said Mark Friedlander, director of communications for the Insurance Information Institute, a nonprofit group.
According to an analysis by Friedlander’s group, condo associations are seeing an average increase for insurance premiums in the 30% to 50% range, “but we’re seeing many associations get renewals at 100% or more.”
“These costs get passed along to the individual owners,” he said. “They have to pay for this coverage.”
Mike Clarkson, president of All Lines/Hilb Group Insurance in Clearwater, an independent insurance agent who represents 750 condominium associations throughout the state, said that, in his estimation, nine insurance companies have exited the state either voluntarily or involuntarily since the Surfside collapse.
“The fallout from that tower collapsing has now changed the guidelines of what these companies are doing, and what they’re now doing going forward,” Clarkson said. “If you’re over four stories and built prior to ‘95, they won’t write you a policy. Just flat and simple: those are their new guidelines.”
Clarkson said those types of restrictions are driving owners’ associations “into the mercy of the surplus lines” — out-of-state insurance companies that don’t need to get their rates approved by the state of Florida, resulting in higher costs.
Those companies are only willing to write certain amounts of coverage, Clarkson added, meaning that associations may have to buy multiple policies and “layer” them on top of one another.
“That’s why the cost of everything is going up so much,” he said.
The new realization of risk post-Surfside comes on top of concerns about dubious insurance claims and hurricane exposure. There have been billions of dollars worth of claims in the past few years even without a major hit from a storm, Clarkson said.
“You take those two, combine it with the politicians who did absolutely nothing, that’s called a recipe for the perfect storm,” Clarkson said. “And that perfect storm is: If we have any kind of [hurricane] hit to Florida this year, we may not have anybody left.”
‘Uninsurable’
Spiraling costs and tighter restrictions in both the insurance and lending industries have led to a new fear that some particularly troubled condo buildings will be uninsurable.
Companies are going to be demanding inspection and financial records — and even meeting minutes — to determine how much risk is in any given building, experts told the Miami Herald.
“Unit owners are going to be caught between a rock and a hard place when inspections show that substantial work needs to be done,” said Ulrich, head of the Florida insurance agents’ group. “They will be in a situation of either being uninsurable if they don’t do the repairs, or do the repairs, and there will be a rather large assessment on every owner.”
Ulrich predicted that, when there is no market left at all for a certain number of buildings, “that will become a question that the Legislature will have to deal with.”
Sklar, the UM professor, said that the market’s response to the Surfside tragedy and Tallahassee’s ambivalence toward it has revealed a “glaring set of omissions” when it comes to how condo associations are allowed to conduct themselves.
“They’re not professionally governed. They’re left to the well-intentioned voluntary boards of directors,” Sklar said. “That’s why lenders and insurers are running away from this sector of the marketplace. They cannot deal with it being left to chance.”
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