 Aloha, I'm your host, Krista Sadler. Welcome to the Condo Insider Show where we explore all topics relative to condo living and your condo investment. Today, our guest is Brandon Keenan with Atlas Insurance here to discuss the second half of our series, Condo Homeowners Insurance 101. Welcome, Brandon. Thank you for having me. Absolutely, happy to have you here. I believe we had you here in October of last year and we didn't even touch the tip of the iceberg, so we wanted to bring you back to further our discussions about condo insurance related to homeowners associations. So, we're going to jump right into things that are pertinent and prevalent right now in the industry and I know you have some things to talk about. So, let's start off with what is a hard market versus a soft market? I always hear that terminology. What does that mean? Well, that's a great question and so I would tell you that we're actually coming out of a soft market, so we'll start with a soft market. A soft market is where insurance companies, they have lower premiums, they have higher competition between insurance carriers, they're relaxed underwriting criteria. So, in other words, there's a lot of money in flow through investments and through underwriting profits from the, based on their underwriting guidelines. So, you have a lot more selection, you have a lot more broader coverages, so in other words, instead of, you don't have to endorse policies as much. And when you say you don't have to endorse policies, define what that means, when you say that you don't have to endorse policies that much, what do you mean specifically? I'm talking as a lay person out there wanting to understand the terminology, which probably is very, you use it every day, so. Oh, yeah. Well, so a lot of times when you have a policy and you go to an agent and you get the policy, based on your particular circumstances or situation, the policy might be broad enough, in other words, it might offer a broad range of coverage based on how the policy is written that would give you additional coverages. For example, if you had a swimming pool exposure or you had any kind of contractors coming on property and you wanted to be, make sure that your AOA was protected in the event that something happens. So, in that respect, if you didn't have the broader form coverage, then you would have to endorse those specific line item coverages to make sure you had coverage for those things. So, if you didn't have a pool, you wouldn't necessarily need that coverage. But in this scenario, just an example, of course, you would, in fact, want to ask for that endorsement if you, if it wasn't being offered on your policy. Right. Okay. So, they're kind of like add-ons in a way, additional endorsements. Yes. Yeah. That's correct. And you can have any number of endorsements. And of course, the other point that I would like to make while I'm talking about endorsements is policy language. So, in the event that you have an umbrella over the top, so with an excess amount of coverage over your underlying limit, for example, let's say a $5 million liability limit on your AOAO and you want a $20 million umbrella because you're concerned about the various exposures you have on your property. And you just want to make sure that the AOAO can be indemnified or can be protected in the event that something occurs. Some are as high as $50, some are as high as $75 million. And if the underlying policy language restricts a coverage, that coverage will not carry through to the umbrella. It will not be offered. So, if you wanted that coverage to carry through, you would make sure that your policy was properly endorsed or had the right types of coverages that you wanted the umbrella to cover. And then everything all the way up is covered by that. All right. So, we're coming out of the soft market where those, it's less expensive and whatnot. So, tell us what's happening now that it's a hard market. What's changing? Well, the mainland's already experiencing a hard market situation. And Hawaii is kind of its own little microcosm here. And we see things kind of delayed from how things occur on the mainland. And so, what happens in a hard market is insurance carriers start to reduce capacity. I'll talk about that in a minute. The other thing that they do is they start to tighten their underwriting guidelines, meaning, you know, depending on the type of risk we're talking about, in this case an AOAO, if Terrier A says, you know, we're tightening our guidelines because we can't afford to take any more losses in this particular area. So, we're only looking for these types of properties that they know should not have as many losses. And so, that's how they control their profits by not overextending themselves when it comes to risk. So, if they take on an older building, for example, an older AOAO that may be not so well maintained, the chances of that building experiencing a lot of loss is very good. And so, a newer building that is, you know, sprinklered and non-combustible materials and it's got all these various safety features in the building, the underwriter says, hey, you know, the chances of that building experiencing loss are a lot less. And so, I'm going to extend my marketing efforts to that and I'm going to underwrite for those kind of risks. So, that's how they know when they take in premium they're going to be okay. This brings two questions to mind as you're talking. So, have you ever run across a situation where you have an older building like that that just can't get insured? And also, part two, I'll remind you if you forget, are there ways that a building, even if it's older, can make improvements that will affect the cost of their insurance coverage down the line? That's a very good question. I would say, yes, insurance can be obtained. That's the good news. What we like to try to do with these older buildings, we try to, you know, the conversation I like to have is I want them to be proactive on the maintenance element of the building. The reason I want them to do that is because I know the underwriting guidelines are going to start to tighten in when they do. The buildings that aren't taking care of themselves and are experiencing what I would call preventable losses and a lot of these water losses are, they're going to be cast out, if you will, into the standard marketplace where they're going to see two, three, four, up to five times what they were originally paying for insurance. So not only are you paying all this extra money now for insurance because by law, you have to have insurance on your AOAO, but at the same time, you still have to take care of your building. You still have those maintenance costs that you're going to have to continue to do. So it makes a lot more sense to be proactive and go after those things. Yeah, for many, many reasons. Yeah, absolutely. So as people's renewals are coming up throughout this year and the markets hardening, you mentioned that they'd have to go to a different market. I'm so sorry, I forget the exact terminology, but I don't want to say a lower or lesser market, but what is the preferred, what would you consider them to be covered by from a preferred standpoint? Are there carriers that are considered, is that the right terminology preferred? Yeah, I would say preferred and standard. And so ideally, you want to remain in a preferred market. The premiums are lower, the coverages are broader. And what I always like to point out is that insurance really is a relationship. We always talk about relationships here in Hawaii. And I will tell you that we have three people in this relationship. We've got the broker or the agent. We've got the AOAO and we've got the insurance carrier. So a lot of times we look at the insurance carrier as this other entity that we paid premiums to and at some point, if we ever have a claim, they come in and they help us out. So it's called the transfer of risk. So we say, look, for this monthly payment or annual premium, if something were to happen or AOAO minus our deductible or our self-insured limit, they're going to come in and they're going to save the day. They're going to tap out and they're going to take over. And so what do the preferred carriers provide that the others don't? Or why are they considered preferred? Okay. So I would say, yeah, I know what you mean by that. I would say that the preferred carriers are going to offer a broader form of coverage. So they're going to encompass a lot of coverages in your policy that are important to your AOAO. When they write those policies, they run specifically for AOAOs. So they understand the types of coverages that are going to be important to you. And they're just going to include those in the form of what are called, sometimes they're called endorsements, sometimes they're called enhancements, but at the same time, they would include them. So in a standard market, it's like a la carte. So you're going to have to. I got you. Yeah, you're going to have to add back those coverages. So you're going to start out with a pretty much a stripped down policy. And then you're going to say, okay, based on the risk exposure that I have, I need to add back all these different endorsements. And as you add those things back in, your premium will reflect that. So it's going to cost more, to most likely to use one of the non preferred, correct? And they're probably not as experienced with handling the different things that come up related to AOAO, you know, association managed properties. I would think if it's not really their specialty. Well, it's not their specialty, but they, yeah, and they would, you know, they kind of, they know they have you. They know that that if you've been non renewed by your preferred carrier that you're already in trouble. And so if you've gone to the, the preferred carriers and they've all turned you down, the standard care is like, I'm your option. So this is what you've got. This is, and then you basically try to clean up your act in that period of time as you're out in the standard marketplace. And you probably want to do that in a pretty big hurry. And that's part of the relationship I talked about earlier. So if I've, if I know that you are looking to me to help you maintain your position with the preferred market, then I'll have that conversation with you. You'll be proactive in taking care of the things that I would recommend to you like the, you know, taking care of high risk components, you know, like water hoses to dishwashers and, and washing machines and refrigerators and things like that. If you're doing that and I can show the carrier, Hey, look, these guys, not only being proactive, but they hired a company to come in and do all these different maintenance pieces for them. And as a result, the underwriters like, great, you know what, I want that business because these people understand the relationship. They, they want a good carrier and I want a good risk. So that's the agent's position is to advise the AOAO and to have a conversation with the underwriter and say, you know, this is why I think you should give this risk a chance. Yes. We have to go to a break in a minute, but very soon. But I wanted, I want to talk more about how, why does it shift? What is contributing to its shifting? Why does it go from the soft market to a hard market? But we're going to talk about that when we get back. I'm so sorry to interrupt you. We'll be right back. Okay. Thank you. Thank you. I'm Stan Osterman. Stan the energy man every Friday here on Think Tech Hawaii. If you're really interested in finding out what's going on in energy, especially here in Hawaii, but also all the way around the world and especially if it has to do with hydrogen, look into Stan the energy man every Friday, 12 o'clock, Think Tech Hawaii either along. Hi, I'm Rusty Komori, host of Beyond the Lines. I have a TV show based on my book, which is also called Beyond the Lines. It's about leadership, creating a superior culture of excellence and building winning teams. We are having a fun drive for Think Tech Hawaii and please, please, please, please help us keep these shows going. Please go on our website, ThinkTechHawaii.com to donate. Thank you. Aloha, welcome back to Kondo Insider. I am your host, Krista Stadler, and we are here with Brandon Kenan with Atlas Insurance, who is talking to us a little bit about the difference between a soft and hard market. And we're kind of going into that hard market now. And I am going to let him expound on what he was talking about before the break unless he's ready for me to ask another question. What do you think, Brandon? Oh, you know, just to wrap that up, so if you have an agent who's proactive and working with you and then has a good relationship with the carrier and underwriter, then even if you are a marginal risk or but you are doing all the things that I can present to the underwriter and show them that look they're working their way back to a place where they would like to be because they have a they have a scale that they can use even within the preferred carrier. You could be at the bottom end of the scale, you could be at the top end of the scale. And so with that conversation and that relationship, the underwriter understands a lot more about the risk. And so they're more willing to extend better pricing. Excellent. All right. So now I would like to ask you, why does the market change? What is impacting the economy or what is shifting that's making it go from a soft market to a hard market? Well, so that's a good question. And because these are somewhat foreign terms, the hard market is upon us for a number of reasons. What that means essentially is that insurance carriers are going to start charging higher premiums because they're not bringing in the same level of profit that they were before. In fact, because of catastrophic events that have been taking place, like the fires in Australia, like, you know, the various catastrophic losses we've had in our own state, like Eva and Aniki, and those, those really took a hit with some of the local insurance companies, as well as some of the international ones. And so what happens is they're paying out more money than they're taking in and their investments are performing. And so they have to start doing something about that. So what they do, they start tightening their underwriting guidelines to start saying, look, we're not going to write, you know, wooden frame anymore, we're just going to write, you know, concrete that are sprinkler. That's all we want to write. We don't, we don't want all those other older buildings that are subject to losses and things like that. We need to recover from that situation. And so hopefully they're, and the other thing that happened is capacity. So where you could go to one carrier to get all of your coverages for like property and casualty. So in a sense, for the building, and then you talk about general liability, which indemnifies the AOAO, and also, you know, hopefully in this case, the board of directors. And you, they once had a $50 million umbrella, the, the carrier who was writing those $50 million umbrellas now is only going to offer $20 million. And you're like, wow, well, we need $50 million. I mean, that's what we have written in our bylaws and, you know, and that's what we want to indemnify for. So now you have to go out to two or maybe three carriers to obtain that same level of capacity. And so, of course, with that comes higher premiums. And that's just the inevitability of the marketplace. And that's going to go back to what we talked about last week, which we're going to talk about. Cheryl Franklin, one of our hosts will talk about going forward, which is that's going to impact the budget, right, which is going to ultimately impact the homeowners dues. And I mean, it's just a snowball effect right down the line. Yeah, very, very interesting. Yeah. And so I want to, and I talk about it all the time. And I do it because I really do care about either rehabilitating an AOAO or helping one that's in good position to stay in good position because that could change in one giant loss. And if it's preventable, we should have that discussion. Yeah, absolutely. All right. All right. So, well, I have this question for you, which you helped me write, but how will that affect the AOAO space? Not sure what the terminology space means. Oh, you know, that's kind of a term that just says within this particular specialty market, how is that going to affect the AOAOs? So one of the things they're going to have to do is obviously, they're going to have to budget differently. They're going to want to implement a lot of the inspections, the high-risk component inspections that I talk about all the time, just because at that point, you've created a baseline. Because right now, you don't know. You don't know what was the last time that hose was ever changed out. Or I even recommend wax rings, which are not even technically on the high-risk component scenario. But it would make sense to me for the low cost that it would be to go ahead and take care of that. And now you have a baseline. So you go, okay, I took care of this whole condo on this whole floor. And so we shouldn't, you know, the likelihood of us having a loss is considerably less. It's not to say that it would ever be completely eliminated, but it would certainly be considerably less. What do you, what would you say just in the state of Hawaii or of what you've experienced? What are the biggest losses? What are the reasons for the biggest losses? Is it, is it floods? Is it fire? Is it, you know, injury? You know, what type of things come across? Well, we've had, we have some of the largest D&O claims. So in the entire United States in Hawaii, our loss ratio is terrible here. We just had one of the largest payouts in D&O insurance. It was over a board that didn't really take into consideration all the responsibilities that they had and not, you know, not being, not being even handed with how they treated the various unit owners. And so in that, that happened on Maui and anyone who knows about this space, if you will, would remember that loss. It's lectured on by lawyers and as an example of what not to do. Define D&O for those of us out in the world that don't know what that means. Oh, okay. Yeah. Sorry. Directors and officers. So those are your board members. And they, of course, have responsibilities to the AOAO. It is a volunteer position. However, it also carries a lot of responsibility. And that requires various specialties in either, you know, hopefully finance and they have some kind of business experience so that they know that when they're having their meetings and they're talking about the business of their AOAO, they have some sense of what it is they're doing. So the claims you're seeing are related to the effect of the directors and officers not handling something that was deemed by the court, apparently, I would imagine as like a fiduciary responsibility or whatever decision they made. There was some kind of liability tied to that. Is that right? And then the insurance company has to pay it out. That's correct. The other one would be being ADA compliant. So there was a situation on Maui where a gentleman was essentially traveling from AO to AO and finding out that they were not ADA compliant and filing a lawsuit and thereby was able to do well for himself there. And that caused a great deal of loss. And as a result, it caused a shift in the marketplace and then premiums are affected accordingly. And everyone shares in that, by the way. Wow. Is that just the last one that you just spoke of? Is that something that's based on the year that the property was built? I mean, if it was built before a certain year, is there, and they didn't have things built to support that? Would it not be, I don't want to say grandfathered in, but newer buildings have to have certain, you know, things for accessibility from a handicap perspective, but an older property maybe doesn't? Or is that true? Is that true? Or is that not true? The older properties would have to be really interesting. Yeah. And so as a result of that, it's something smart to get on, because otherwise you could end up at the wrong end of a lawsuit. And whereas, yeah, the insurance company paid for that, well, guess what? Now you have that large loss. It was a preventable loss on your insurance. It would have cost a lot less to have dealt with it on the front end and had it done correctly, then have to deal with it on the back end and have a huge payout. Yeah. Before we run out of time, and we could go back to some things if we do have time, but I know you have an event coming up, and I wanted to have you share a little bit about that from an educational standpoint for people here on Oahu that may want to attend. Oh, yeah. So thank you for bringing that up. And we actually, yes, we are putting on a seminar where we're actually going to have all three of the major insurance carriers that are here in the state of Hawaii. And that would be Allianz First Insurance and DB Insurance. It'll be panel speakers. And it'll be each of the carriers will speak to essentially a lot of what I said earlier. They're going to talk about what they're called as an appetite. So in other words, what are they looking for? And they'll express all that. They'll talk a little bit about their companies and how they perform and who handles the claims and how that all works, because everybody always wants to know how the claims are handled. And then there'll be an opportunity for question and answer towards the end. And I will actually be monitoring that for, I'll be talking to the different carriers and helping them get their message out. Okay. Thank you. All right. I may have to attend that myself. Sounds very good. Yeah. It should be very educational. Yeah. All right. Well, we have a few minutes left, but is there anything really pertinent that we missed in this conversation that you want to share with the audience? Well, so I would say that we're looking at a hardening market. So what we want to do is we want to do everything we can to keep ourselves in the right place. So we want to take care of those inspections. We want to put the money into the repairs. We're going to have to do it anyway. Let's just get it done. And the insurance carriers will reward you for that. And I just think that's the right way to approach it. Okay. Very good. I'm so happy that you were able to join us. And I hope everybody that's here in Oahu can attend the event on the 27th. Correct? It is actually on the 27th. Okay. And it's from 8 to 1130 at the Japanese Cultural Center. I asked that anyone who was going to attend, please RSVP. And we have, I could send you a flyer or you could contact us at the AOA Division of Atlas. And we'd be able to assist you from there. Okay. Very, very good. Also wanted to mention, once again, I know these folks are folks in the studio probably don't have this ready to go up. But if you are interested in sharing any ideas or thoughts or suggestions or potential guests that you'd like to see your topics on Condo Insider, please email us at condoinsiderhi at gmail.com. Next week, the 13th, Jane Sugimura is going to be giving a legislative update, what is pending at the 2020 legislation. And then next week, excuse me, next month, the first week, the first Thursday of the month, March 5th, I will be interviewing Randy Traeger regarding very, very important fire code updates, new ordinances that are taking effect, and timelines to get those changes done within your condo association. And also particulars about what the criteria is of who would be required to do, to make those changes within your, within your condo. So thank you all very much. And you all have a great week and look forward to seeing you next month. And we'll look forward to having you view Jane's show next week on Thursday. Aloha.