Logan Brown thought he was already experiencing sticker shock after his insurance premium for his Bushwick condo tripled last year.
And this summer, the insurance company withdrew construction on the building, citing what condo board chairman Brown described as a “loss rate” in connection with water damage claims after heavy rains flooded the basement in 2020 and 2023. .
Brown’s management company also sought compensation from several other insurance companies. Almost all of them refused to provide quotes, but one company offered insurance for more than $15,000 per year, which the building chose. Looking only at insurance premiums, the common expenses for each apartment have almost doubled this year.
“It’s gotten to the point where we have to have buildings evaluated every few months just to maintain funding,” Brown said. “I hope we don’t end up in a situation where someone is unable to pay their assessment.”
Mr. Brown is not alone in facing hefty premium increases and insurance companies refusing to renew his policy. Across the country, home and apartment owners are struggling with high rates, loss of coverage, and limited options. This trend is being driven by worsening disasters accelerated by climate change, rising prices that insurance companies have to pay to insure themselves, and rising costs related to inflation. At stake is the health of the housing market and New Yorkers’ ability to buy homes.
While the situation in New York City is not as dire as in Florida or California, where insurance companies are pulling out of business after severe hurricanes and wildfires, property owners in the boroughs are still feeling the squeeze.
“All of these external influences are forcing insurance companies to be more selective about who they insure,” said Sean Kent, senior vice president of insurance at property management company FirstService Residential. said. “There were some buildings that were really struggling to make ends meet because they were forced to pay premiums just to insure their buildings.”
Based on a portfolio of approximately 600 condominiums, co-ops, and apartment complexes in New York City, Kent sees premium increases ranging from 10% to 300% at renewal, depending on claim history. I was doing it.
Publicly accessible data on the cost and availability of non-life insurance is fragmented and incomplete. The New York State Department of Financial Services regulates interest rates, but the actual amount paid by individual property owners varies and there is no law requiring disclosure.
But the limited information available suggests that New York state’s already high premium rates are rising faster than in the rest of the country. Nationally, multifamily insurance premiums rose an average of 12.5% annually from 2020 to 2023, according to Moody’s.
Average insurance premiums for apartment buildings with 50 or more units more than doubled in Brooklyn and rose more than 50% in Manhattan and Queens between 2020 and 2023, according to information from real estate data firm Yardi Matrix.
AI and drones are watching over you
The New York State Department of Financial Services has not commented on the growing strain on property and casualty insurance.
In general, regulators have made a fundamental difference between protecting consumers and maintaining the financial stability of profit-seeking insurance companies (ensuring that consumers are compensated in the event of a claim). facing tension.
“Regulators want to protect homeowners from exorbitant insurance premiums, but they also want a vibrant and prosperous private market that is competitive and gives consumers choice.”London said Benjamin Keyes, a professor of finance and real estate at the university. The Wharton School in Pennsylvania. “There is tremendous pressure on regulators to rein in growth as costs rise, putting a strain on homeowners.”
Keeping insurance premiums low can help property owners in the short term, but could have harmful long-term consequences: Keyes said that if regulators cap insurance rates, It said it could send a signal that the region is at low risk and could encourage development in vulnerable areas. Discouraging investments to protect climate-sensitive properties.
Climate change is causing more frequent and intense storms each year, causing coastal flooding from storm surges, inland flooding from heavy rains, and other types of damage. According to Fannie Mae, there were $18 billion worth of weather events across the United States in 2022, compared to 28 in 2023, with the former costing more. Research suggests New Yorkers may be looking to get subsidies for costs paid by insurance companies in other states that have experienced disasters.
Inflation also increases costs for insurers, which are further exacerbated by the challenges caused by the pandemic in the construction materials supply chain.
“Housing is much more expensive and worth more than it used to be, which means it costs more to rebuild,” said Caroline Nagy, senior policy advisor for housing, corporate power and climate justice at Americans. “It will cost a lot of money,” he said. For Financial Reform, a coalition of nonprofit organizations working for consumer protection and a fairer financial system.
Amy Buck, executive director of California consumer advocacy group United Policyholders, said new technology is showing insurers “Technicolor details” about real estate risks, contributing to higher premiums. He pointed out that there was.
“Some of these details don’t inspire confidence from a risk underwriting perspective,” Bach said. “Through AI, manned drones, and data mining, they are learning about and learning about older homes, deferred maintenance, and risks they used to insure but are now reconsidering whether it is a sound investment.”
The same factors that drive up insurance costs for consumers also drive up rates for reinsurance, which is essentially insurance companies’ own insurance.
New York City has several factors that affect high insurance rates, including fire danger in high-rise buildings, a growing wave of destructive lithium-ion battery fires, and the proximity of neighbors whose washing machines can overflow into other apartments. There are special risks.
A boom in personal injury lawsuits against property owners is also contributing to the high litigation rate, industry officials say. Ellen Melchioni, president of the Insurance Association of New York, an industry group, cited “extensive litigation and rampant fraud” as well as large sums of money awarded by juries in court and litigation financing (usually cash advances to cover legal costs and settlements). He cited the fact that he was arbitrating money.
Are you moving from New York?
Upgrades such as installing new wiring or plumbing, hiring a doorman or installing a security system can help property owners get better rates, according to the Insurance Information Institute, an industry group. However, not all homeowners can afford such an investment.
In South Ozone Park, Queens, homeowner Christopher Pace used his savings to replace a leaky roof on his home, which helped him get better insurance rates. But the interest rate was still almost double what he paid two years ago.
“That’s something neither I nor my wife expected, and that’s why we’re seriously considering moving from New York,” he said.
Consumer advocacy groups, industry leaders, and insurance experts are considering ways to address this crisis. It will address the causes and effects of climate change, create state-backed organizations to fill the gaps left in the market, and increase transparency in the process to give consumers more ownership. be. Affects risk score. However, they stress that the insurance problem cannot be solved easily.
“This is a collective problem, and it’s especially difficult to leave this up to individual homeowners and property owners,” Wharton’s Keyes said. “Solutions also need to be collective.”
