Insurance is the world’s Safety Net. We could not own and live in our homes, work in our businesses, drive our cars or protect our families (life insurance) without transferring the risk of loss to insurance companies for the price we pay them.
I want to share with everyone my opinion about what to expect from insurance companies in 2024 regarding pricing, non-renewals, moratoriums, and tougher underwriting. I’ll finish my report by offering some advice that wise HOA managers and board members can use to mitigate the Rising Tide of insurance rates.
Our Association Insurance industry is experiencing turbulent times. I have owned and managed my Farmers Agency for 25 years and this is the hardest market I’ve seen. A hard insurance market means prices are up and insurers are very selective in who they insure, often non-renewing Associations deemed too risky for a wildfire or who have aging infrastructure. This hard market has been an expensive pill to swallow for many Associations in 2023, and my crystal ball tells me next year our industry will receive more pricing pain for many Associations.
Why Association Prices are Increasing: Four Changes
Four changes occurred in the last few years which hit the insurance industry hard. One is the increase in the number and severity of natural catastrophes, and two is the construction inflation that followed and has caused carriers to be unprofitable. America’s seasonal Hurricanes, Floods, Convection Storms, Hail-Storms, and Wildfires have taken a heavy toll. The costs to pay a General Contractor to repair or rebuild properties has risen dramatically, up over 33%, since the pre-pandemic years. In addition, two more changes developed which added more costs for carriers.
Three, auto collision accidents cost the insurance carriers more today due to so many computers, airbags and expensive parts in vehicles. Delays from China in getting those parts meant carriers had to pay “very high rental car bills to claimants too.” Also, Auto Body repair facilities labor rates are double or triple what they were 10 years ago. Want to get a dent repaired on your car’s fender? $2,000!
Fourth and finally, personal injury Lawyers are advertising heavily on TV and billboards fishing for customers, which has raised the number of expensive personal injury claims. Many of these injury claims are legitimate, but many are frivolous. Ten years ago the average personal injury settlement was about $27,000. Today the average is about $120,000. OUCH!
The same carriers who insure Associations insure America’s single family homes, cars, and businesses. Many of the same carriers who have to pay out Billions of Dollars for East Coast Hurricanes, Floods, Rain. Tornados, Hail Storms, and Snow-Storms, insure our Associations. These combined four changes caused our current rate increasing world, and we are not out of the woods yet, as I expect more rate increases in 2024.
Besides increasing Association’s pricing, carriers are taking other actions to lower their costs dramatically. They are laying off employees, outsourcing call center service to Jamaca, the Philippines, or India where labor costs are 1/5th compared to the US. They are cutting the small commissions they pay their Agents and Brokers. They are leveraging technology to work less expensively.
It is indeed, a very hard market, and we are all sharing in the pain.
The Perfect Storm Causing the Rising Tide of Insurance Rates
1. Natural Catastrophes
2. Construction Inflation
3. Auto Collision Repair
4. Costs Personal Injury lawsuits
2022 and 2023 Costly Catastrophes
Anyone who claims insurance companies are not really hurting has not read the numbers. 2022 was one of the worst years in US history for the number and severity of catastrophic losses. According to global analytics provider Verisk and the American Property Casualty Insurance Association, America’s carriers experienced a $26.9 billion net underwriting loss in 2022.
Hurricane Ian alone last Fall in 2022 was the 3rd largest catastrophe in US history at $74 Billion; only Hurricane Katrina and Sandy were higher. There were also twenty-two floods, Hurricanes, and Storms in 2022 causing over $1 Billion each.
Is it global warming or just a string of catastrophes? There is truth in the fact that developers built many Associations deep into dense forest areas without creating Fire breaks or thinking about the Wild Fire risk.
Insurance carriers independent financial rating agencies such as Moody’s have downgraded some carrier’s financial strength and threatened to downgrade others. Due to 2022’s expensive catastrophes, carriers raised their prices in 2023 for almost all their customers: HOAS, Single Family Homeowners, Condo owners, Business Owners, and all of us Auto insurance customers. Few consumers escaped rate hikes in our beautiful state.
In the first 9 months of 2023, property losses to carriers were over $50,000,000,000, which is one reason why I think we’ll see more price increases in 2024.
Pricing Predictions
According to the US Property and Casualty Outlook for 2024, insurance carriers still have a long way to go to return to profitability. I expect HOAS property rates to rise again in 2024. I expect rates to finally stabilize in 2025, unless there are a few massive Hurricanes, Floods, or Wildfires in 2024.
I think in 2024 we can expect about a 15% average premium increase for Home Owner Associations. Keep in mind that 15% is only an average number however.
There will be some HOAS that see little if any rate increase. Some others will be non-renewed or see big premium increases. Those smaller Associations in Non-Wildfire areas and with great claims histories can expect only about a 5% increase, mainly due to construction inflation. A few Associations will see small premium decreases as prior losses fall off their 3 year period. Larger condominium Associations with multiple or a large claims and in High Wildfire Areas can expect Non-Renewals as they are forced into the Non-Admitted market. By large Associations I mean approximately over $50,000,000 in property coverage and over 200 homes.
Planned Developments in a Better Position
Condominium Associations will see these increases, but PD’s or Planned Developments where owners insure their single-family homes will not, since their property coverage is limited to the clubhouse, tennis courts, fences, pools, and common area lateral lines. Single family homeowners in these PD’S will see their individual home insurance prices rise, and some will be non-renewed.
Non-Renewals
Unfortunately, those condominium Associations who are in high to extreme Wildfire zones run the risk of being non-renewed in 2024. Carriers don’t want to take on the risk of paying out over $50,000,000+ for a total Wildfire property loss. Buildings with aging infrastructure and over 30 years of age are also in the cross hairs for Non-Renewal. Carriers like newer buildings and don’t like older ones for fear of internal water or electrical fires due to old building systems.
Carriers are also looking at the number of HOAS they insure in a zip code. If they insure a lot of HOAS in Wildfire zones in one zip code, for example, they may non-renew Associations to decrease their risk of huge losses.
Moratorium: A Temporary Suspension of Activity
Some carriers have stopped issuing new HOA policies temporarily. My primary carrier Farmers Insurance advised me and my fellow Farmers Agents that as of November 1st, 2023, they have suspended all new HOA business until about May/June of 2024. However, my agency can still provide new HOA policies, but with Travelers and other admitted and Non-Admitted carriers. We are still renewing our existing Farmers HOAS with rare exception too.
I have also fought successfully to keep prices down for 65 Associations that I insure with Farmers. Trust me it took a lot of time, debating, and even arguing, but I won most of the time to reduce some of the pricing increases! I like fighting for my clients since I served on m board and know the challenges.
A handful of other carriers have also placed a moratorium on new business. The goal when carriers do this is to lower their risk of losses by lowering the number of customers they insure. At the same time they are raising prices. These two risk management steps help the carrier to be more profitable.
Reinsurers Role in the Price Increases
Reinsurers are large investor institutions and wealthy individuals who provide investment capital (dollars), to the primary carriers. In 2023, these reinsurers raised their cost for lending investment capital. This is another reason that I forecast the primary carriers will be raising their rates about 15% on average, with many HOAS experiencing even higher premium increases, depending on their size, loss history, and location.
Steps to take to Mitigate future Premium Hikes: The Proactive Board
Besides premium hikes and non-renewals as a way to reduce their risk and improve their bottom line, carriers are sending out inspectors to look in detail at their Associations customer’s roofs, buildings, Electrical Panels and wiring, Plumbing systems, siding, paint, asphalt, balconies, steps, pools, tennis courts and other fitness facilities. In 2024 I recommend boards be super proactive and fix or upgrade any building fixtures they can. I’ll list below all of the action steps board members and managers can take. I know experienced HOA Managers and Board Officers know these safety steps, but for those who are new to our industry, below is Kevin’s friendly Farmers reminder.
- Replace any old Zinsco, Federated Pacific Stab-Lok, or Challenger, GTE Sylvania electrical panels as carriers are often Non-Renewing when they discover an HOA has never replaced them. Consult with a reputable Electrician for advice to confirm these and other panels are considered dangerous. Start adding to the Reserve Fund for this Upgrade. If an HOA can’t afford a total replacement, start replacing 10+ now to show your carrier the board is proactive toward safety. Start and keep a spreadsheet or Word Document of each owner who upgrades their panels! This way you will have documentation to show the insurance Underwriter. When an underwriter gets proof of this safety work, they can request the carrier renew your Association. I have done this successfully in 2023 with a proactive board member!
- Replace old galvanized plumbing systems. You can google this topic or watch a video showing that galvanized pipes corrode faster than modern piping. Insurance companies have started Non-Renewing HOAS with them.
- Dryer vents cleared of lint yearly. (75% of appliance fires are dryers.). This is no joke. See this Link on Dryer Fires: https://jenkinsrestorations.com/preventing-dryer-fires-in-your-home/#faq
- Gutters cleaned of leaves. Install latest gutter screen products.
- Level asphalt and fill cracks to avoid slip and fall lawsuits by home-owners, guests, and tenants. We had a a big lawsuit this year after an owner tripped over a ¾ inch crack on the common owned driveway.
- Repair and install new siding where needed. Hardie Plank is one of the most fire resistive siding brands today.
- Trees. Have your Arborist identify any Trees or he havy Limbs that may fall onto buildings this winter storm season. Cut them down!
- Storm Drains cleared out.
- Notice to homeowners not to overload electrical circuits with too many Christmas Lights. Electrical fires cause a lot of fire damage fast.
- Inspect your club house’s roof, walls, and windows to avoid water intrusion. Caulking is needed a minimum of every 5 years.
- DO NOT REPORT SMALL CLAIMS. A high frequency of small claims will trigger carriers to raise your rates or Non-Renew.
Two simple ways to Lower your Insurance Costs
- Switch to a Walls Out Property policy. This will not only save your Association a significant 20% each year, but will also reduce greatly those small interior home water claims which impact on HOA rates too. (See my article in the Fall 2023 issue of the California Associations Institute’s magazine, “The Communicator”, for more information on this cost saving tip that I strongly recommend). I’ve been advocating since 2022 to my board clients to switch to Walls Out property coverage as a wise 5-10 year long term strategy to control insurance costs. This does require an amendment to your CCRS and a member vote, but we’ve done it and owners understood why they must use their insurance for water claims inside their home and other covered losses.
- Raise your deductible to from $10K to $25K, or to $50,000. I can change the deductible with a click of my mouse and save Associations about 10% each year. It has worked successfully. Be sure each home owner has building coverage in their H06 up to the property loss deductible. They should also have Loss Assessment coverage in their H06.
If I missed any safety step, please add it. I think a proactive board will put themselves in the best position to avoid Non-Renewals, and mitigate inevitable price increases in 2024 by taking initiative and keeping their Associations safe.
Success Story in 2023
I worked in 2023 with one of my Board Member clients who installed 50+ new electrical panels. The carrier had sent them a Non-Renewal Notice so they had to act fast. They found it much less expensive when they replaced all the panels in bulk as the contractor negotiated a discount when ordering a lot of panels. Today and thanks to one board members fast work and my strong request, all home owners are safer with modern panels and the carrier withdrew their Non-Renewal notice.
I hope you found this report useful. I know the rising tide of Insurance rates has created uncertainty for all of us. We will get through it however, so stay the course. In 2024 it may mean we all have to accept the reality of the need for an increase in our regular monthly assessments, but I do think by early 2025, without a large number or severity of catastrophes, that the rising tide will stop.
As always, please call or email me with your questions and comments or if you need a thorough insurance review. I always get a great response from Managers and Board Members, and this keeps me on my toes to write future articles and reports that are useful for you!
Happy Holidays to all
Kevin