Recent developments, both legislative and environmental, have led to considerable changes in the New Jersey insurance marketplace. And such changes, as managers know, often lead to added paperwork, confusing requirements, and tricky legal questions for condo boards. While many new insurance products—such as the heavily-hyped “terrorism coverage”—have failed to catch on for the condo market, modifications in traditional coverage have altered the insurance picture in ways previously unseen.
Many insurance insiders now see condos as liabilities in the wake of the Great Recession. And that, in turn, presents problems for management. Although unit owners pay reserve fees on an ongoing basis, insurers fear some managers may defer maintenance in a bad economy. When that happens, say experts, condo properties become a bad risk, producing losses that are passed on to condo associations. “Real estate values are dropping to record lows for sales,” says Judy Hennessey, an account executive at Connelly-Campion-Wright Insurance in Belmar. “And people are afraid to have work done and are unwilling to buy a new condo or sell one. I see unit owners trying to maintain an attractive cohesiveness by putting flowers out on decks and keeping their own unit in good shape.”
Insurance professionals say the recent housing bubble has led to confusion for managers and insurance agents alike. “I think the concern for insurance companies is that oftentimes condo associations may feel that the value of those condominiums have come down in price,” says Loretta Worters, vice president of communications for the Insurance Information Institute (I.I.I.), an industry trade group. “So a lot of associations tend to think they can reduce their amount of insurance because it’s based on the value, when, in fact, the cost of insurance is based on rebuilding costs.”
And the confusion doesn’t end there, explains Hennessey. “Banks are driving borrowers crazy as well as their insurance reps. Anyone who has a mortgage with a bank that was involved in taking Troubled Asset Relief Program (TARP) money is now being deluged with requests for insurance certificates—over and over again.”
Additionally, Edward J. Mackoul, president of the Island Park, N.Y.-based firm Mackoul & Associates, Inc., says that over the past several years, there were a number of instances in which board members or the property manager have stolen funds from the association, resulting in enforced requirements for fidelity bond coverage.