9624561298?profile=RESIZE_710xThe collapse of the Champlain Towers South condo in Surfside in June created ‘an awakening moment’ in which insurers will ‘tighten their underwriting standards and demand information about inspections,’ says Mark Friedlander, from the industry’s Insurance Information Institute. AP photo


Related Stories: Boca Raton first in county to set standards for building safety reviews | Highland Beach tentatively approves ordinance for condo inspections


By Charles Elmore

The condominium collapse in Surfside sent instant shock waves through Palm Beach County’s southern coast, where condo sales help drive one of the nation’s hottest real estate markets but most condo buildings near the ocean bear the wear and tear of 25 years or more.
The news triggered “many calls and emails from panicked clients,” said Brendan Lynch, president of Plastridge Insurance, an agency more than 100 years old in Delray Beach.
“My initial reaction to this was, ‘Is this isolated to that one building?’” Lynch said. “I know condominiums so well and this is the first time I’ve heard of something like this happening.”
Yes, his agency had handled occasional claims over the years, such as a chunk of concrete falling off a condo balcony and hitting a car, he said. Thankfully no one was injured. 
But now a horrifying scene dominated the news. The partial collapse on June 24 of Champlain Towers South, a 12-story beachfront condominium in the Miami suburb of Surfside, killed 98 people.
Within days, insurers began sending letters to condo associations in South Florida asking for proof they passed safety inspections or other information, and serving notice they could lose coverage without it.
In August, a South Palm Beach condo association received a letter from the state’s insurer of last resort, Citizens Property Insurance Corp., saying it had 30 days to produce a signed roof replacement contract or a policy that started in June could be canceled, Lynch said. The association was able to keep coverage by providing assurances improvements were on the way, he said.
An insurance company’s inspector at another condo reported a crack in the garage, causing a flare of alarm.
“I had to scramble and show them it was literally a crack in the stucco,” Lynch said.

Impact on rates uncertain
The full impact on the cost and availability of condo insurance might not be known for months or years, as insurers with regulated rates file new annual proposals for what they wish to charge and decide whether to renew policies.
But international insurers whose rates are not regulated play a big role in Florida’s condo market, as does last-resort Citizens, whose prices are regulated but designed to be anything but the cheapest in the market.
And already, agents say finding or replacing policies for condo associations or the owners of individual units since Surfside has sometimes meant prices 30% to 40% higher.
“We have been in business for 16 years and it has become increasingly difficult to place insurance with wind coverage on the condominium units in the tri-county area,” said Lisa Pacillo, owner and vice president of All Risk Insurance Group in Boca Raton, referring to Miami-Dade, Broward and Palm Beach counties.
All of this represents a big deal economically in Palm Beach County. The Surfside collapse came as Palm Beach County was leading 86 oceanfront counties nationwide in condo sales in the second quarter of 2021, according to Attom Data Solutions, an Irvine, California-based provider of real estate data. 
The county’s 10,454 unit sales in the quarter led coastal America and came with a median price of $275,000, a leap of more than 47% in one year, Attom found.

Inspection rules scrutinized
Now local and state government officials are considering an urgent overhaul of regulations for building inspections, maintenance and repairs. Insurers are watching closely and taking stock of how much risk they are willing to take.
“Clearly it’s a moment where insurers are going to tighten their underwriting standards and demand information about inspections,” said Mark Friedlander, Florida-based spokesman for the industry-funded Insurance Information Institute. “It is an awakening moment not just for South Florida but nationally.”
Starting Aug. 1, the annual cost of policies covering individual condo units, known as HO6, began to rise an average of 9.8% in Palm Beach County from Citizens. These policies offer protection for a resident’s personal property inside a condo unit as well as liability coverage.
The average Citizens premium for such policies in the county rose from $1,009 per year to $1,108, in rates approved before Surfside.
Before the collapse, policies that cover the overall condo building and common areas might cost $275,000 to $300,000 for a typical association on a barrier island in southern Palm Beach County, Lynch said. Now all await what happens to those insurance costs, which could arrive on top of separate assessments to residents in condos that are making repairs or improvements on a building.
For buildings close to the coast, condo associations were already relying heavily on what are known as “surplus-lines” insurers, Lynch said. These are companies such as Lloyd’s of London whose rates are not regulated by the state. 
Surplus-lines companies collected $7.6 billion in premiums for a range of coverages including condo insurance in Florida in 2020, up 15% from the previous year, according to the Florida Surplus Lines Service Office. Palm Beach County was the third-largest market in Florida for surplus-lines carriers, generating more than $830 million in premiums.
A database at the Florida Office of Insurance Regulation offers a partial glimpse of companies that hold condo insurance policies in Palm Beach County, though it does not include surplus-lines insurers or those with regulated rates who block release of their information as “trade secrets.”
As of June 30, for example, Occidental Fire and Casualty Co. of North Carolina held 23 policies with condo associations in Palm Beach County to cover fire and other risks not including wind damage, records show. A statement by Occidental said decisions to write new business or renew policies are made on a “case-by-case” basis. 
In addition to other kinds of policies, Citizens maintained 168 “wind-only” policies for condo associations in the county in the second quarter, meaning it served as supplemental coverage that protected specifically against wind damage from events such as a hurricane. 
A somewhat larger array of insurers with regulated rates show up as writing policies for owners of individual condo units, sometimes with wind coverage sold separately. As of June 30, Allstate subsidiary Castle Key Indemnity Co. had more than 15,000 such policies in the county, followed by Citizens with more than 9,000. Allstate officials did not respond to a request for comment.
State law requires insurers to tell regulators if they plan not to renew at least 10,000 residential policies statewide 90 days before notices go out, but so far there have been no such notifications from companies with regard to condo insurance since June 24, said OIR press secretary Karen Roach.
The state’s Office of Insurance Regulation is “closely monitoring” the situation and will work with the governor, Cabinet and Legislature “to address any market challenges and ensure consumer protection,” Roach said.
Since June, Citizens has not seen an uptick in condo policies, either for associations or individuals, spokesman Michael Peltier said.
But Citizens officials say they are adding 5,000 policies a week statewide for single-family homes and other segments of the market as private insurers pull back to trim risk. Since 2019, Citizens has seen its total policy count grow from 420,000 across Florida to more than 700,000. Citizens expects to carry more than 1 million policies by next year. 
“Citizens is considering all ideas to reduce exposure, and to continue to operate as efficiently as possible during this unprecedented growth period,” Citizens President Barry Gilway said Sept. 22 at a board meeting in Miami.

Risks being assessed
Much will depend on whether insurers see Surfside as a tragic but isolated event, or an early indicator of widely underappreciated risks in coastal condos.
How insurers assess risks and set prices in the months and years ahead will take into account a whole range of factors — not least building age. The structure in Surfside was 40 years old. In Palm Beach County, local officials have been discussing stricter regulations for buildings 25 years and older near the coast.
More than 90% of the 348 condos along the barrier island from South Palm Beach to Boca Raton are at least 25 years old, a Coastal Star analysis found. That included 88 condo buildings in Delray Beach, 73 in Boca Raton and 71 in Highland Beach.
The older condo buildings grow, the greater the risk they tend to face from weakening or damage over time in wet, salty and windy conditions near the shore without proper maintenance, experts say.
“We often think of buildings as permanent, but they are not,” said Anne Cope, chief engineer at the Insurance Institute for Business & Home Safety in Richburg, South Carolina. Her group took part in a meeting Aug. 17 in West Palm Beach involving organizations concerned about improving building safety.
“The tragic events in Surfside have highlighted the need to look at the health of our buildings,” Cope said. “This building was sadly showing signs of distress. How can engineers better communicate about the health of structures and the need and urgency of repairs?”
Cope said she could not address the likely effects on the premiums insurance companies may charge in the future, but hopes the incident will lead to improved safety standards.
“It was Hurricane Andrew in 1992 that led Florida down the path of strong, modern codes that are now the example for jurisdictions across the country,” she said. “Andrew taught us that having a strong code on the books wasn’t enough; the enforcement and administration of codes was key to the building code.”

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