Impact of COVID, Insurance Market on NY Brick & Brownstone and City Homes Programs

Recently we spoke with Katie Vespia, Program Manager for Distinguished’s NY Brick & Brownstone (NYB&B) and City Homes programs about the impact of both COVID and the insurance market on city properties across the county. NYB&B is a package insurance product designed for owner- or tenant-occupied properties in Manhattan, Brooklyn and Queens. City Homes offers a package product with enhanced features designed for small urban multi-family buildings in designated cities across the country.

The COVID Effect on Moving, Buying Habits

The coronavirus pandemic caused two immediate reactions among some city dwellers: a move to the suburbs and a shift in purchasing habits for individuals who chose to remain in the city. “At the height of the COVID pandemic, some city dwellers looked to the suburbs for wide-open spaces and single-family homes for short-term refuge. But the duration of this short-term move and how permanent this trend will be yet to be determined because, while there are still individuals who are choosing to leave behind city-living, many have returned to their brownstones and apartments, co-ops and condos,” said Katie.

Another potential trend in the wake of COVID is a shift in buying habits among some city dwellers. “In speaking with some of our agents in Boston, homeowners are beginning to look away from living in larger, amenity-based properties where there are shared HVAC units and shared community space, to considering smaller, brownstone-type buildings with a limited amount of contact and exponentially a decrease in exposure to the virus. In smaller buildings, for example, you’re likely to have individual air conditioning units and less opportunity for congregating,” noted Katie.

More Time Home, More Property Damage Claims

Tenants and owners are spending more time in their homes due to COVID, upwards of 85% of the day, which in turn increases the frequency of claims for apartments and condominiums. “Prior to COVID, individuals were leaving their homes on average eight to 10 hours a day, but in the wake of COVID, people are now doing more electronically – with remote work, homeschooling, and home entertainment the norm. People created home offices, for example, and use more electricity in older buildings that aren’t equipped with the amperage to meet their additional needs. We saw an uptick in the frequency of fire claims for a couple of months yet it’s still too early to discern whether this is a reflection of COVID and will continue as people work from home or it was just a hiccup,” explained Katie.

The insurance industry is also keeping its eye on the impact of COVID on mercantile spaces (restaurants, retailers) and their vacancy exposure.

How the Insurance Market Is Affecting Our Programs

Although the property market has hardened for various risks, increases in Distinguished’s urban-dwelling niche have been minimal (with average increases taking into account inflation) in comparison with other classes. In addition, while the construction industry, for example, has been substantially hit by COVID, the City Homes program continues to experience stable new submissions and renewals rates. “In fact, June was our strongest month of the year. The opportunity for apartments and condominiums in the metro areas we serve is stable, if not growing, particularly in our sweet spot of two to 15 units,” said Katie.

Liability rates for the NYB&B program due to the state’s Labor Laws and jurisdiction that favors the insured have been hit hard with market adjustments to obtain rate adequacy and profitability.

Mitigating Risk

Some property owners may be considering reducing their Replacement Cost coverage to trim insurance costs. “It’s important for brokers to explain the negative financial impact such a decision would have in the event of a loss,” said Katie. “If the loss exceeds the amount to rebuild the property to its current condition, without Replacement Cost coverage, the property will be underinsured with the insured making up the financial shortfall.” In addition to Replacement Cost coverage, Ordinance or Law is critical for a property to be able to rebuild up to code. “Many of these older properties have had significant building code changes throughout the years. Ordinance or Law coverage steps in to provide coverage to rebuild in compliance with today’s codes.” Katie also recommends that landlords/owners require tenants to carry Renters insurance and to ask for proof of coverage. This is particularly critical in today’s environment as more people are home than ever before with the potential losses to occur likewise greater now than ever.