The COVID-19 pandemic, the 2021 collapse of Champlain Towers South, Hurricane Ian, years of hail in Colorado, the Marshall Fire and now skyrocketing inflation have all wreaked havoc on insurance especially for condominium and townhome association in Colorado. For years Colorado has been in a “hard market” (upswing in a market cycle when premiums increase and capacity for insurance decreases). Many carriers have left the state or have significantly restricted the types of properties they would insure. Let’s take a deeper dive into some of these trends impacting rates for condominium/townhome associations.
1. Inflation
Inflation continues to have a dramatic impact on insurance rates. When cost rise so do losses from the cost of materials to labor. Small loss become even larger impacting the initial rating factors. On top of that limited supply adds time to the completion of projects furthering losses.
2. Capacity
Carriers must have reserves and/or use reinsurance (insurance for insurance carriers) to help cover potential losses. Rising costs pushed individuals and associations to purchase more building coverage to help cover property to replacement cost. This forces carriers to place more money in reserves or buy more reinsurance. The carriers’ current reserves, often invested in things like the stock market also took a hit forcing more pressure for additional money to be transferred to reserves, sell bonds or buy more reinsurance. This is where the capacity issue comes into play. In a fairly short period of time this greater need increases the price either from transferring more of the insurance premiums into those reserves or buying from reinsurance carriers along with everyone else. Furthermore, natural disasters like Hurricane Ian impact reinsurance costs since many of those losses are transferred to the reinsurer (after a certain loss size, think of this like an extremely large deductible). This higher demand for reinsurance couple with losses is a perfect storm for rising rates.
3. More restrictions
After years of mass hail events and fires, carriers began to either pull out of writing condominium/townhome associations in Colorado or further restrict their underwriting to try and find more stable ground. Many carriers began only writing newer association, limiting the areas in which they will write, restricting the max coverage available, amending policy forms to create more exclusions, increasing wind/hail deductibles and the like. Many carriers became less interested in larger association or older ones to try and limit losses found on those accounts.
Other factors may influence the cost even more like prior losses, location, fireline score and the like. The same trends can be found even in single family home insurance where rates in Colorado in 2022 averaged close to a 30% increase.