Condos promised huge savings if they invest in self-insurance

Feb 29, 2008

Palm Beach Post--Feb. 29, 2008

Palm Beach Post Staff Writer

DELRAY BEACH — For many fed-up Florida property owners, it would be a dream come true:

Fire your old insurer and get a new one that would cut premiums almost in half.
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Self-Insurance for Condos a No Brainer?
To hear Richard Duer explain it, it’s a no-brainer for condominiums in high-risk coastal …

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Condo self-insurance pros and cons

ZPro: Premium savings could be substantial – almost half of what condominium associations pay with Citizens Property Insurance Corp.

ZCon: Condominiums would be subject to a 5 percent deductible per storm, instead of the usual 3 percent Citizens deductible per season.

ZCon: Unlike Citizens, which can assess every insurance policyholder in the state, condominiums in the trust could assessonlyone another if it runs out of money.

ZCon: The trust would have a maximum of only$104 million to pay claims, even though it would cost $5 billion to replace all 60 potential buildings in the trust.

Source: Staff research

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The Palm Beach Windstorm Self-Insurance Trust is attempting to do just that, cutting the windstorm rates that condominium associations must pay to protect their buildings from hurricanes.

”We’re allowing condominium residents to control their own insurance destiny,” said Richard Duer, a consultant to the fund, which is less than a month old but has signed up five condo associations in South Palm Beach and one on Singer Island.

An additional 40 buildings have been given quotes, and trust organizers say they expect to insure about 60 buildings by year’s end.

Moving to the self-insurance trust means getting rid of state-sponsored Citizens Property Insurance Corp., the insurer of last resort that condos ended up with after private insurers dropped them.

Condo associations often have seen their insurance bills double and triple in the last five years after moving to Citizens.

On Tuesday night, condominium owners in Seagate Towers, two high-end twin 13-story buildings on the Intracoastal Waterway in Delray Beach, got a sales pitch from the trust as to why they should be the next buildings to sign on the dotted line.

Seagate residents are older than 55, and many were doctors, attorneys and successful business owners before they retired.

Most can afford an increase in insurance, but they would rather not pay more than necessary.

”People are looking for value,” said Rita Conyers, president of the Seagate Towers Condominium Association.

The Seagate buildings sustained window and roof damage in the active hurricane seasons of 2004 and 2005, but the damage never reached the $700,000-plus Citizens deductible, Conyers said.

The buildings haven’t received a penny from their insurance policies since they were built in the 1970s, she said.

Residents of the towers were told Tuesday they could cut their premiums from around $200,000 a year to around $116,000 by self-insuring and agreeing to cover losses from any building in the pool.

The risk would be minimal, said Duer, who helped organize the trust and got legislative approval for it in January 2007. Only quality high-rise buildings constructed of concrete and steel are allowed to join the pool, he said.

”The stability of the group is strengthened by sharing risk with equally well-built buildings,” Duer said. "We’re not lumping you in with mobile homes and wood-frame houses.”

Unlike with a traditional insurance company, the windstorm trust is not backed by a state-organized guaranty fund that pays the claims of failed insurers. And unlike Citizens, which can assess non-Citizens policyholders to pay claims, the self-insurance fund has no such mechanism.

The trust is solely responsible for the claims of its members, which means the members of the condos are responsible for all claims.

Duer told Seagate residents that the most they would be assessed if a storm caused major damage would be about $85,000 per storm after a 5 percent deductible was met.

As a condition of state approval to operate, trust organizers agreed to give condo residents a letter from Insurance Commissioner Kevin McCarty stating that ”significant" assessments can’t be ruled out if a severe-weather event occurs.

”Because hurricanes are such extreme catastrophic events, no responsible person can assure you that assessments of this type would not be needed,” McCarty wrote.

Conyers said the trust sounds like a viable idea. Board members will make a decision before the end of March, when Seagate’s Citizens policy expires, she said.

The chance of a catastrophic loss affecting the trust probably is small, said Robert Hunter, an actuary who serves as the insurance director of the Washington-based Consumer Federation of America. Still, there could be a problem if a major storm hits Palm Beach County.

”It would be better if all the condominium buildings were spread through the state,” Hunter said. ”They have a huge concentration of buildings all in Palm Beach County."

Sarah Stein, a senior-citizen resident of the Barclay condominium in South Palm Beach, said she is happy with her association’s decision to go to self-insurance.

Stein said the insurance savings will result in her $525-a-month maintenance fees dropping next year by about $50 to $60.

”I think it’s the way to go,” she said. "How could this be bad?”