What to Consider When Building Insurance Programs for Aging Properties

In July 2021, after the collapse of the Champlain Towers South in Surfside, Florida, the city of Miami ordered structural inspections of all buildings over 40 years old. Since then, two other condominium buildings have been deemed unsafe and evacuated. The residents of Crestview Towers were ordered out of their homes in July 2021, and the city allowed them to return in April 2025. According to a CBS News Miami online article, even though the city is allowing residents to return, some are still concerned about the safety of the building, and during the building’s retrofit, many of their units suffered damage that hasn’t been fully repaired.

This highlights some of the issues that come up with older buildings, and specifically with their insurance programs. I’d like to highlight a few areas, including underwriting and pricing challenges, claims problems, ordinance and law coverage requirements, and some risk management strategies for condo associations to consider.

Underwriting Aging Properties

Sometimes, as underwriters, we receive applications that paint a glowing picture of a risk. It’s the way the agent and applicant want us to see their building. It’s not wrong or false normally. It’s just optimistic. The problem with older buildings is that applications may be too optimistic about their actual condition. Underwriters must evaluate these buildings as they exist today, not what they were like when they were built.

Consider a high-rise condominium building with a requested replacement cost of $10 million. What does an underwriter want to know about the building? The agent has already sent in the basic information, like year built, construction class, status of the sprinkler system, the type of occupancy, how much of the building has a commercial occupancy, whether or not there are short-term rental spaces, and the like. That’s a baseline for information that an underwriter may ask for, but other items might cause an underwriter to dig deeper.

Depending on what the loss runs look like, or whether or not they have been submitted, the underwriter will ask for more information, such as the last building structural report, data related to the ages of four critical building systems (HVAC, electrical, plumbing, and roof), including when they were inspected, replaced, or upgraded, and pictures. There will always be more pictures requested.

When the underwriter understands the entire picture of the risk, that’s when decisions are made. In the best situations, the underwriter approves the risk without any coverage restrictions, at a limit of insurance reasonably close to what the insured requested, and at a premium that can be afforded. The problem comes when the underwriter sees things like deferred maintenance, a lack of loss history, or a 40-year-old building where no structural or critical system updates have been made.

If the underwriter finds any of those items (along with other potential red flags), conversations will need to be had. The underwriter may offer to write the policy on the condition that certain items be inspected, repaired, or documented before coverage can be bound. She may also impose certain coverage restrictions, such as adding an Actual Cash Value for roofing material endorsement, providing coverage only for the first $1-$2 million of replacement cost, or declining to offer a quote at all.

Then there’s the issue of price. It will be high.

Losses Will Tell the Tale

Once the policy is written, there is also the potential issue of how it will respond in the event of a claim. Will there be enough coverage? Will the coverage respond in the way that the insured needs it to?

When a building is damaged, and the insured contacts their insurance company, the first thing that a company will do is determine whether or not coverage is in place for the claim. So, they will take the information, confirm that the policy exists, and if it does, then confirm that the building is listed on the policy. There are more details than that, but that’s the essence of it.

Once it’s determined that coverage exists, the work of adjusting the claim begins. Statements are recorded. Pictures are taken. Measurements are done. When all of the adjusting happens, in a perfect world, the adjuster tells the insured how much they estimate the claim to be worth, the insured receives estimates that agree with the adjuster, checks are written, work gets done, and the building is back in shape in relatively short order.

However, when you’re dealing with an older building, it’s not that simple. Consider buildings like Crestview Towers, which broke ground in 1969 and opened for occupancy in 1972. Crestview Towers was built under building codes that were in effect in 1972. The building codes in that area have been updated every two to three years since then, and when building codes are updated, older buildings do not have to comply with the changes until certain renovations happen, or the building is damaged and needs repair.

Even if the building was properly insured on the date when it was completed, over the following 50 years, it becomes more difficult to make sure that the cost to replace it matches the limit on the policy. Some policies include an inflation guard optional coverage. This optional coverage will increase the limit of insurance on covered property (the building) by a set percentage annually. It also increases the limit of insurance daily based on a fraction of the annual percentage.

If we consider a building that had an initial replacement cost of $1,000,000 and an inflation guard percentage of 5%, we find that the building limit will be $1,050,000 after the first year. If the policy is allowed to renew annually, keeping the inflation guard in place and not adjusting the limit of insurance based on new cost estimates, after 50 years, the limit of insurance would be approximately $11,500,000. This seems like a huge change in limit, and it is, but is it enough?

We understand that this isn’t a reasonable example because insureds do not stay with insurance companies for that long, and insurance companies won’t go that long without running an updated cost estimator on the value of the building. When the insurance company increases the limit of insurance based on their updated cost estimate, the insured begins to look for coverage elsewhere, and often tries to justify their old limits so that the premium doesn’t go up.

Additionally, the older a building gets, the more out of code it is. This means that even in the event of a partial loss, the local code enforcement officer arrives on site to inspect before issuing building permits for the repairs and finds that the building needs some upgrades. Those upgrades might be related to federal requirements of ADA, or simply updates of critical systems within the building. That’s another issue.

A Primer on Adding on Ordinance or Law Coverage

Even when a building is valued at replacement cost on a commercial property policy, it really isn’t the cost to replace the building. Replacement cost is generally defined as the cost to replace an item of property with property of like, kind, quality, and utility. So, when an agent tells an insured that they have replacement cost on their building, or the insured reads their policy and sees replacement cost, they can believe that it means that if the building is damaged or destroyed, the insurance company will pay to replace it. And they will, kind of.

When insureds think about replacing a building, they may think about just replacing the building, even if certain things have had to change over the years. Think about the electrical needs for a condo in 1972 compared to today. Back then, there were appliances, lights, televisions, and stereo equipment–and that’s about it. Today, people have computers, tablets, phones, gaming systems, and more that require power.

When the insurance policy mentions replacing the building, it means replacing the building that was there. It does not include replacing the building and upgrading the electrical system or the plumbing system. It does not include making any changes that are required to comply with any kind of federal, state, or local building code or ordinance. It doesn’t care if the city says that you can’t rebuild that building here; you have to move it across the street, or 10 blocks south.

This is where we lean on ordinance or law coverage. On several commercial property policies, including the ISO Condominium Association Coverage Form, this critical coverage is not included. There are carriers that may include it by default, but making sure that it’s there before a loss is better than assuming it’s there and finding out that it isn’t after a loss. Consider two potential loss situations.

In the first case, there is a fire that damages several units and common areas on three floors. The building is not a total loss, and the building code allows for it to be repaired. The code enforcement officer comes in to inspect and discovers that the last time the electrical system in the entire building was updated was 25 years ago, and the plumbing system in the building is 15 years old. He determines that these need to be updated before he approves the work. The insurance policy will pay for the repairs to the common areas, and the unit owners’ insurance policies will pay for repairs to their units, but without ordinance or law coverage, none of the required updates will be paid for, and those costs will come out of the association’s (and unit owners’) pockets.

In the second case, we have a smaller building that also suffered fire damage. In the investigation, it’s determined that 60% of the building was damaged in the fire, and the city requires that the remaining portion of the building be torn down and rebuilt. The insurance policy will cover the damage that was done by the fire, but the loss of value of the remaining portion of the building is not covered without ordinance or law coverage.

Ordinance or law coverage provides three separate and related coverages. When the city says that the building cannot be repaired but must be torn down and replaced completely, Coverage A provides that remaining limit of insurance. It’s always the difference between the direct physical loss of the building and the limit of insurance, and it covers that lost value when they say the building needs to be torn down.

Once that undamaged part of the building is knocked down, someone has to come and pick up that rubble, or more directly, remove the debris. The policy provides coverage for the debris from the damaged portion of the building, but we rely on Coverage B to provide coverage for the debris that exists because we had to tear down the rest of the building. This requires a limit of insurance, and finding that limit is complicated, especially when you consider that older buildings might have materials in them that are considered hazardous today.

We also have to deal with the increased cost of construction–and that’s where Coverage C comes in. It provides a limit of insurance so that the building can be upgraded to meet today’s building codes and other requirements.

Here’s another limit that can be hard to come up with because the older the building, the more code upgrades might be needed. This is part of the reason why coverages B and C can share a blanket limit. That can allow the insured to select a lower limit, but if there’s a total loss, they might find themselves underinsured, which is what we have been trying to avoid.

Managing the Risks

What do we do about it?

Whether you’re a risk manager, board member, or insurance agent, the right answer is not the easy one. It’s important to keep up with maintenance so that deferred maintenance doesn’t turn into a safety issue that needs to be addressed, with a price tag that will be higher than it could have been several years before.

Annual insurance policy reviews are a must. The board may not like it, and it may create uncomfortable conversations, but we can’t manage the risks we don’t know about. We can’t insure against the exposures we haven’t considered. That means reviewing limits of insurance to determine whether they are enough to pay for losses. Even if the odds are that there will never be a total loss, do you want to explain the coinsurance condition after the check comes in with a significant reduction?

Lastly, making sure that the policy covers everything that everyone thinks it does, and when there are exclusions or gaps in coverage, determining if there is a way to provide coverage for those items, what they’ll cost, and whether the insured wants to pay for it, is a good way to make sure that they have their eyes open if a loss happens.