A QUERY INTO WHY OUR INSURANCE RATES WENT UP BEYOND WHAT WE BUDGETED FOR

Recently, we got our 3-month financial report for our condo association from Gallagher P.M., Inc., our management company since the first of the year. I noticed that the amount paid out for our building insurance was significantly more than we had budgeted for. Why so much more? I decided to call Plastridge Insurance, as we have lately been encouraged to do with insurance questions. I talked with Karen Botcher, who could not have been more forthcoming and helpful. I want to tell you what she said, but first let me give you the nuts and bolts of our insurance financial figures for background.

Insurance cost us (Sheffield N, a 26-unit association with three 2-story buildings) $22,776 for 2009. On advice from Seacrest, our former management company, whose figures Gallagher used, we budgeted $25,304 for 2010, an 11% increase in the premium. We have understood that when the budgets are drawn up in the fall, the final insurance rates for the coming year are unknown, so this is always an estimate. The estimate is usually made on the high side, however, I have been told, so associations are less likely to find themselves in the hole later.

Our actual insurance payments for the first three months of 2010 totaled $6573. This represents a 15.5% INCREASE over the 2009 rates. IF THIS RATE WERE TO HOLD FOR THE YEAR, IT WOULD MEAN INSURANCE FOR 2010 WOULD COST US $26,292—ALMOST $1000 MORE THAN WE BUDGETED FOR.

I HAD SEVERAL QUESTIONS FOR KAREN: Were we paying the correct rate? Was the rate likely to stay the same for the year? Why was there this substantial increase over what was budgeted for, which was presumably based on information Plastridge gave the management companies? Was the increase attributable mainly to only one thing, such as legislation that had been passed, decisions made by insurance companies, OR possibly the fact (which I had known) that one of the 11 insurance companies in our “package” of insurances arranged for by Plastridge had refused to provide insurance for 2010, and we were having to pay double the old premium with a new company Plastridge had found?

THIS IS WHAT KAREN TOLD ME: Our rates were correct, and she felt sure they would stay the same for the balance of 2010. Yes, Plastridge did give an estimate for budget purposes to the management companies, and yes, Plastridge did generally give an estimate on the high side so associations were less likely to find themselves in the hole later in the year.

Karen said that most of our 11 insurances were with Citizens, because it had been the best choice for the Village. Our DIC (Difference in Conditions) insurance, however, had been with Philadelphia Insurance. This is the insurance that covers water damage not caused by a flood. (It may not cover hurricane-caused damage, too, I am not sure. Karen and I did not discuss this.) In any event, it IS the insurance that covers water damage from water leaks, such as from a defective hot water heater, burst pipe, or defective toilet.

KAREN SAID YES, WE HAD TO BE PLACED WITH ANOTHER INSURANCE COMPANY, MAX SPECIALITY INSURANCE COMPANY, FOR THIS COVERAGE IN 2010; THAT THE COST OF THIS INSURANCE HAD MORE NEARLY TRIPLED THAN DOUBLED; AND THAT YES, IT WAS THE INCREASE IN COST OF THIS INSURANCE THAT WAS RESPONSIBLE FOR OUR INSURANCE COSTS EXCEEDING THE BUDGETED AMOUNT. She said the Citizens insurance costs had increased about 10%.

Was the reason Philadelphia dropped us because of the large number of recent claims in the Village made for water damage, I asked Karen. Yes, she said. Was this information—on the claims—made available to Max Specialty Insurance, so that their rates were likely to have been triple the old because they knew our recent history? Yes, said Karen, they would have this information in hand as a matter of course.

What was this DIC insurance costing us in 2010 compared to 2009, I asked. Karen said the DIC was costing us $82.27/unit/year in 2010; in 2009 it cost us only $29.00. For our 26-unit condo, this is an increase of $1385 for 2010.

These are the facts as I obtained them from Karen. As a courtesy I am going to send her a copy of this blog so she can correct anything, by Comment or her own blog, that I have misunderstood; or if she lets me know I am wrong on a point or two, I will post a corrected blog.

It looks to me as though we can lay the blame for a good deal of the increased insurance costs for the Village squarely on the recent water damage claims we have had. IF IT IS COSTING OUR CONDO ASSOCIATION A GOOD $1000 MORE FOR THE YEAR ON ACCOUNT OF THESE HIGH CLAIMS, IT MUST BE COSTING THE VILLAGE ABOUT 300 TIMES THIS: $300,000 OR MORE. To what extent these recent high claims have been falsified is another issue, which I understand is still being looked into.

Karen and I also discussed what insurance companies look for in allowing a lower premium. I’ll share that with you in another blog, I think.

One further thing: Karen had the highest praise for Dave Israel and the newly formed Village insurance committee. They have been a pleasure to work with, she said. I got the sense she meant: like a breath of fresh air.