2024 NY Real Estate Insurance Market Update

The real estate insurance industry (and insurance in general) has been in a difficult period for the last several years. It is referred to as a “hard market”; defined as a low availability of insurance and increasing premiums. This is cyclical. The cycle should have corrected by now to a “soft market” direction, but it has not and we are in one of the "hardest" markets the insurance industry has seen in 30+ years. The following is a list of causes to the current market issues:

·  Macro inflation: generally, the insurance world is 1-2 years behind events in the rest of the economy. Inflation goes up in 2021. Insurance companies begin to feel the pain in 2022 & 2023, in terms of losses paid out in the property &Liability side. Construction costs are up over 50-60% Nationwide since 2019,depending who you ask. Claim costs have increased substantially as well.

·  Claim frequency and complexity: Repairs and construction is getting harder. Department of Buildings is taking longer to approve jobs, niche supplier timeframe is longer, construction financing is more expensive, etc.  Insurance companies are seeing larger “soft costs” and time delays which is pushing up claim costs.

·  Building violations: Insurance companies began underwriting DOB building violations several years ago. As DOB has been stricter to enforce code compliance and issued violations, this has resulted in more properties becoming ineligible for insurance from many standard carriers.

·  NY legal environment: the courts and legal environment in NY has always been tough, but the liability payouts are becoming larger, with “nuclear verdicts” becoming more common. In addition, lawsuit financing is a new industry, where financial groups are funding plaintiff lawsuits, incentivizing plaintiffs to sue and go to trial more often for higher payouts.

·  NYC aging buildings and infrastructure: NYC is getting older. In 2000, Pre-war buildings were 55-100+ years old. Now they are 80-125+ years old. The properties are becoming increasingly harder to insure, as most have not undergone a complete gut renovation. Those that have seen complete gut renovations have more options, but they are still limited. Many insurance carriers are also pushing for complete system renovations in the last 20-30 years.

·  Coastal location: while we don’t get hurricanes often, we are overdue for one. Re-insurance costs for wind/hurricane in quite expensive in NYC and insuring properties near the water is becoming especially hard. Many insurance companies are requiring 1 mile or more from water to insure a property. Some National insurance companies require 2 - 5 miles.

·  Large assets in a consolidated area: NYC has trillions of dollars in real estate assets located in a relatively small area. The potential for a large catastrophe event could overwhelm an insurance companies’ finances, so each carrier limits the amount of property they are willing to insure.

·  Regulatory: NY Department of Financial Services has not been quick to approve new rates and forms for admitted insurance companies. In addition, the legislative    bodies keeps proposing new laws that make insuring real estate riskier for insurance companies. This 1) makes it harder to make an unprofitable area of insurance profitable and 2) increases legal uncertainty causing insurance carriers to limit new business.

In general, the insurance industry has not been attracted to NYC real estate the way they have been to other metro areas. Regional insurance carriers have played an outsized role in the space, and as they have been constrained, more and more client are forced to go to “non-admitted” insurance companies, like Lloyds of London. This results in higher premiums and often less desirable terms.

The future: We hope this correction will resolve itself in 12-24 months, but the end is not in sight. Even when the insurance market changes direction, there will be headwinds for older properties and properties located in coastal areas. Prices likely will remain elevated with a new construction cost structure. We have been working with dozens (if not hundreds) of insurance partners to put together programs for our clients and keep a close eye on changes in the market. Please reach out to us if you would like to discuss your specific situation.