SECTION: Section 11; Page 1; Column 3; Real Estate Desk 

LENGTH: 2347 words

HEADLINE: Insurance Bills Provoke Sticker Shock

BYLINE:  By DENNIS HEVESI 

BODY:
BUILDING owners and residents are doing double-takes these days as they look at their insurance bills and see premiums that have jumped sharply -- even, in a few cases, doubling.

With a significant chunk of insurers' assets suddenly dissipated by payouts set aside after the World Trade Center attack -- about $50 billion in claims out of about $140 billion in available capital -- the insurance companies and their network of financial backstops, the reinsurance companies, have taken steps to restuff that cushion against possible future losses. Landlords, co-op shareholders, condominium owners, market-rate renters and even, eventually, rent-regulated tenants will pay the price. Premiums have been increasing by about 30 percent nationwide, and far more for many New York buildings -- 66 percent according to one landlord group's survey.

For now, industry analysts say, owners of private homes, particularly in more suburban environs, will not be hit as hard, though circumstances other than the events of Sept. 11 are expected to also raise premiums on homeowner policies.

Paul Brensilber is president of Jordan Cooper & Associates, managers of 40 residential buildings with about 6,000 apartments -- most in "core Manhattan," he said, "but not downtown at all."

Last month, when insurance policies for 30 of those buildings were renewed, "the increases averaged 60 percent," Mr. Brensilber said. "And we have another package of properties, luxury buildings, where we've experienced an 87 percent increase."

One of the smaller buildings that Mr. Brensilber's company manages, a 58-unit co-op on the Upper West Side, saw its premium increase from $18,000 to $30,000 a year -- a 66 percent jump. "The owners will get a 75 cent per-share increase, or an average of $207," he said. "It's significant, it hurts."

Daniel Benedict is president of Benedict Properties, which owns 40 buildings with 2,000 apartments, most of them rent-regulated six-story structures in Queens and the Bronx. "My insurance policy expired Oct. 29, just in time for the new rates to come into play," Mr. Benedict said. "The rates increased between 40 and 100 percent. In past jumps, it's been 10 to 12 percent."

"I've seen cycles before," Mr. Benedict said, "but nothing like this."

There have never, of course, been circumstances like this.

"First of all, the impact will be greatest on multiunit structures that are dense with people," said Robert P. Hartwig, vice president and chief economist for the Insurance Information Institute, a trade association. Besides office buildings and other businesses, those structures include co-op, condominium and rental apartment buildings, all of which must carry commercial insurance because they are operated as businesses, usually organized as corporations.

"Now, post-Sept. 11," Mr. Hartwig said, "any building like this could be viewed as a possible target that is attractive to terrorists -- either the structure itself being the target or the structure suffering collateral damage because of proximity to another attractive target." Citing Battery Park City as an example, he said, "It was not the target itself, but nevertheless suffered severe damage."

And while those risks are, as Mr. Hartwig put it, "considerably diminished in places like suburban Yonkers and Dutchess County, or the more rural parts of the metropolitan area," clusters of multifamily buildings and even single-family homes in proximity to less obvious potential targets could also eventually be affected. Those targets could include, according to industry officials, airports, corporate complexes, military bases, port facilities, a stadium, a chemical factory, a power plant.

SOME real estate executives wonder, however, whether the insurance industry is stretching to its own advantage. "Things are so out of control," said Joseph Strasburg, president of the Rent Stabilization Association, the largest landlord group in New York City. "Post-9/11, in some respects, gave insurance companies an excuse to really jack up these rates."

"Several companies, both U.S.-based and international," Mr. Strasburg said, "have ceased writing for residential, which reduces competition and further increases pricing."

Mr. Hartwig confirmed that assertion, saying: "It is true that some insurers and reinsurers have stepped back from some lines of insurance in order to limit their potentially catastrophic loss-exposure from terrorist acts. It's not limited to residential."

Mr. Brensilber, whose buildings are facing sizable premium increases even though they are not downtown, said: "What we're being told is that the insurance companies are just considering them high-risk. I can understand high risk -- like my office is right by St. Patrick's Cathedral and Rockefeller Center. But the Upper East Side or West Side? I don't imagine that would be first and foremost for terrorist activity. I don't understand it."

It has been, to be sure, a course-changing year for the industry. Insurance companies have experienced, as have all others, a drop in the value of the stocks and bonds in which they invest. They have begun to turn away from their decade-old practice of using homeowner insurance -- the policies by which individual home and apartment owners insure their possessions -- as a loss leader; that is, as a discounted lure in a package with other types of more profitable personal policies, like automobile insurance. At the same time, after Sept. 11, many businesses that were underinsured are now clamoring for increased coverage. So there is a squeeze.

Then, on Dec. 20, Congress rejected legislative efforts to create a federal backstop for the industry by which the government would have shared some of the losses in the event of future terrorist attacks.

And so, with the unprecedented "global decrease" in the capital available to pay claims after Sept. 11, Mr. Hartwig of the insurance institute said, there has been upward pressure on premiums. That pressure has also been caused, he said, "by the fact that reinsurers have indicated that they will no longer, in many cases, be willing to provide coverage for terrorist acts."

Reinsurance is, in effect, insurance for the primary insurance companies -- a way of reducing their exposure. And in some instances, particularly for large buildings, the primary insurance company will take out policies with several reinsurers, thereby further spreading the risk.

"You're left with a situation," Mr. Hartwig said, "where fewer primary insurers are holding all the risk for acts of terrorism with no way to spread it out around the globe. For many insurers, this represents an unacceptably high level of risk."

To cover that risk, insurance companies have taken steps other than simply raising rates. While in the past they had offered their good customers credits (discounts on the premium), some companies have reduced or eliminated those credits. Some companies have reclassified policyholders from a "superpreferred" tier to a preferred or standard tier -- classifications based on the age and condition of the building. And in some cases, companies have decided to eliminate coverage in the basic comprehensive policy for certain risks -- like terrorist attacks or the presence of lead -- requiring customers to buy a rider at an additional expense.

But the primary method of raising premiums, other than through the rate, is to increase the valuation on a building. "Typically, when you bought a policy in the past," said Dan Margulies, executive director of the Community Housing Improvement Program, a group representing about 2,500 landlords in the five boroughs, "you worked with your broker to establish an agreed-upon value for replacement of the building, and the policy premium would be based on that agreed-upon value. Now the insurers are saying they don't agree, essentially saying, 'The building is worth more and we're going to charge you more.' "

Based on several surveys, Mr. Hartwig, the industry representative, estimated that premiums for commercial policies are rising by about 30 percent as they come up for renewal across the country. "So the cost of insuring apartment complexes will rise, nationally, somewhere in that 30 percent range," he said.

But John Schule, vice president of Smyth, Sanford & Gerard, the chief insurance broker for the Rent Stabilization Association, said that a recent survey of 400 building owners showed that the average rate increase has been 66 percent. "It's for five-unit apartment buildings in the five boroughs on up to 300-unit owners," Mr. Schule said. "The sticker shock has hit them."

And Mr. Margulies of the Community Housing Improvement Association said, "We're seeing typical renewal increases in the 40 to 60 percent range and, in some cases, double."

With many of his members owning rent-stabilized buildings, Mr. Margulies wondered how the city's Rent Guidelines Board would calculate insurance increases in its annual Price Index of Operating Costs and deliberations over possible raises in regulated rents. "We have a big concern that they won't take full account of the increases," he said. "It's never a straight pass-through, because they look at all the costs -- taxes, oil, labor, supplies, water, legal, insurance -- and then they flip a coin." Officials of the Rent Guidelines Board declined to comment.

Doing some quick calculating, Stuart Saft, chairman of the 2,200-member Council of New York Cooperatives and Condominiums, said, "According to the agents I've spoken to, the cost for insuring most buildings is currently 8.5 cents per square foot."

"So let's say you have a building that's 200 feet by 200 feet; that's a footprint of 40,000 square feet," Mr. Saft continued. "If it's 15 stories, the building has 600,000 square feet. If the insurance is 8.5 cents per square foot, the premium would now be $51,000." But last year, he said, "the rate would have been about half of that, so the premium would have been about $25,000."

If the building has 300 apartments, meaning the apartments average 2,000 square feet, "the insurance cost doubles to $170 per apartment," Mr. Saft said, "and that will show up in the maintenance."

Citing an actual renewal, Mr. Saft said a recently constructed building on the Upper East Side that paid $31,035 for insurance last year will pay $49,128 this year -- a 63 percent increase "in a brand new, fully sprinklered building with no loss history."

"There are 76 units," he said, "so the average insurance cost per apartment is going from $408 to $646."

Asked about increases of 50 to 100 percent for buildings in New York, compared with the national average of about 30 percent, Mr. Hartwig said: "Yes, that will happen for some properties. One thing we've learned from Sept. 11 is that terrorists are intent on not only destroying property, but also destroying lives. So a residential structure itself could be targeted."

"I should stress," he added, "that prior to Sept. 11 rates were rising in the 10 to 15 percent range anyway."

Three primary cost-drivers were at work, nationally, before Sept. 11, and still are, Mr. Hartwig said: record losses from natural catastrophes over the last decade, rising rebuilding costs and a slimy black substance called Stachybotrys chartarum -- mold.

The latter, he said, "is a completely new category of suit, and it's having a dramatic impact on the cost of insuring homes and, in some areas, apartment complexes and office buildings."

Last month, 500 tenants and the landlord of Henry Phipps Plaza, an apartment complex in the Kips Bay section along the East River in Manhattan, reached a $1.17 million settlement of a lawsuit over mold that the tenants contended had caused health problems ranging from respiratory disease to hastened deaths. The original suit had sought $12 billion.

BUT even before mold joined the list of cost-drivers, premiums were already rising, particularly because of an increase in natural disasters. In 2001 alone, Mr. Hartwig said, there were 14 named storms across the country, "which is well above average."

"Fortunately, none came up this way," he said. "But 2002 could change all that. In the metro area, there are many homes that are considered at great risk for damage from windstorms, including hurricanes, because they are close to the shore." At the same time, there has been an acceleration in the cost of home repairs, Mr. Hartwig said, caused by, among other things, higher material costs and a shortage of skilled labor.

All of that, he said, raised the cost of homeowners insurance by 6 percent in 2001, and is expected to do the same this year -- after a 1.5 percent increase in 2000.

Stephen Batkin, president of Lampe-Batkin Associates, an independent insurance agency in White Plains, said that while premiums have been inching up, he has not yet seen much change, "from the suburban homeowner's point of view," after Sept. 11. That is true, in part, because state insurance departments review and sometimes trim rate increases for homeowner policies.

The World Trade Center attack has, however, "caused people to review their policies to see if their coverage is adequate," Mr. Batkin said. "That we've seen a lot of. People finally realized that it is possible to have total losses, and they want to be sure their policy will protect them."

Pointing out that the global tremors from Sept. 11 -- particularly "the uncertainty about reinsurance" -- have yet to ripple through the more tranquil lanes and cul-de-sacs of suburbia, Mr. Batkin said: "We're just waiting to see what will happen. All signs point to a change."

Mr. Benedict, the landlord with many buildings in Queens and the Bronx, was befuddled by it all. "It has nothing to do with claims histories!" he said.

And in Manhattan, Mr. Strasburg of the Rent Stabilization Association, the large landlord group, was both troubled -- about "the double whammy of rate increases and valuation increases" -- and philosophical.

"We believe it's cyclical," he said, "and things will ease off in two years."
 http://www.nytimes.com

GRAPHIC: Photos: Daniel Benedict at Buckingham Hall in Elmhurst, Queens, one of 40 properties his company, Benedict Property, owns. He says rates on some of his buildings rose 40 to 100 percent after a policy expired in October. (Shannon Stapleton for The New York Times); Paul Brensilber, president of Jordan Cooper & Associates, said the insurance premium increase averaged 60 percent at a group of 30 of the buildings that his company manages when policies were renewed last month. (Nicole Bengiveno/The New York Times)(pg. 1); Stephen Batkin, left, president of Lampe-Batkin Associates, said he had not heard of sharp insurance increases in the suburbs; Robert P. Hartwig, vice president and chief economist of the Insurance Information Institute, said the impact would be greatest in structures dense with residents. (Ruby Washington/The New York Times); (Susan Farley for The New York Times)(pg. 8)

LOAD-DATE: January 13, 2002