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Village grapples with rising insurance

A perfect storm of economic pressures is sending Century Village East buildings scrambling to todeal with rising insurance costs. The circumstances are forcing some buildings to hit residents with thousands in assessments, while others are entertaining the idea of dropping out of the insurance market all together.

The dramatic spike in the cost of building insurance (the policies paid by associations to cover damage to the overall buildings) is due to multiple factors all hitting at the same time.

According to a recent Reuters news report, over the past year “costs have risen the most on multifamily properties such as apartments and condos, according to industry executives and data from credit ratings agency Moody's.”

“Florida multifamily property owners are bearing the greatest insurance cost increases of all states and asset classes in the U.S., according to Martha Bane, managing director of the property practice at Gallagher, a major insurance and reinsurance broker,” Reuters reports.

In Century Village East, building associations are facing their largest insurance rate hikes in years, with many looking at a 50% increase over last year. This would be the largest increase in almost 20 years.

What is driving the sudden and drastic increases?

The Surfside building collapse along with Hurricane Ian were a one-two wake-up call for insurers. Both incidents are forcing carriers to take a closer look at policies. Surfside prompted companies to be much more demanding concerning building conditions and has made them less willing to overlook what previously might have been considered acceptable building wear and tear.

One of the most common and expensive examples of this lower tolerance level involves building roofs. This is also where many Century Village East buildings are being hit the hardest.

Following damage caused by Hurricane Wilma in 2005, many CVE associations replaced their roof, and while 18 years may not seem like a long time to have a roof, increasingly risk-averse insurance companies are now seeing it differently.

Mark Friedlander, director of corporate communications with the Insurance Information Institute told an Orlando television station owners of structures with shingle roofs “should be prepared to replace them around the 10-year mark in order to keep their insurance.”

While many experts agree a 10-year-old roof has more years left in it, insurance companies are less willing to give building owners the benefit of any doubt.

This is hitting some low-rise garden buildings inside Century Village East the hardest, as insurance carriers demand a roof replacement to continue coverage. With fewer units upon which to spread the cost, some low-rise associations are assessing units thousands of dollars to cover both rising premiums as well as the roof replacement.

Another factor pushing up insurance costs is linked to the estimated price to replace a building should it be damaged beyond repair.

Replacement cost is an important element of any insurance policy. The carrier needs to know how much they would pay to rebuild a building. For just about every building in the Village, that price tag is going up.

Replacement costs are influenced by two factors: labor and materials. Lingering COVID-related labor and material shortages continue to push the price of both higher. The increase is so dramatic at least one building in the village is seeing its replacement cost jump from $7 million dollars to $11 million dollars. That is an increase of over 50 percent. The more it costs to replace a building, the higher the premium demanded by the insurance company will be.

But the current sticker shock hitting buildings across the Village is not only due to economic conditions out of their control. It is also fueled by factors very much in their control. The very nature of how associations function has contributed to their financial struggles.

Homeowner associations, and the resident filled boards that run them are often reluctant to make tough financial decisions that make weathering rising costs more bearable. During good economic times when costs are either stable or dropping, boards are more likely to lower fees than to maintain current levels or even institute a modest increase to build up reserves.

Peer pressures, the desire to curry favor with fellow residents, and the fear of social retribution sparked by unpopular decisions often serve as obstacles to casting fiscally responsible, long-term looking votes. It is much easier for a board member to live with praise that comes with lowering fees than it is to explain to their friends why raising them is the right thing to do.

The result is buildings with little to no reserves to offset this year’s insurance rate hikes or to pay for major repairs.

Emerson Poort is an insurance agent who has serviced buildings in Century Village East for 17 years. He says there was a stretch of approximately eight years from 2012 to 2020 when insurance rates remained relatively stable in the Village.

“People are reacting to an insurance market they haven’t seen,” says Poort. He says it’s possible the market is simply catching up to the fact that there have been no significant increases in recent years. “If interest rates stay the same, we may be looking at a new norm. But if rates drop, and the market corrects, costs will also drop, and insurance rates will go down.”

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