From the President
by Eric Andresen
Our magazine’s theme this month is maintenance, with plenty of advice on how to diagnose and make repairs. In addition to the how-to of maintenance, I want to examine this essential activity in a different light—the role that insurance claims play in our maintenance plans.
All of us are struggling with the current state of the insurance market. Facing skyrocketing premiums and dramatically reduced coverage, we are now forced to increase our deductibles and make other not-so-desirable changes just to keep insurance rates somewhat affordable.
What has maintenance got to do with this terrible situation? Lack of maintenance and/or the improper application of maintenance work have much to do with the premiums charged to us today. Faulty workmanship and, in many instances, the complete lack of necessary maintenance work are responsible for many of the claims that carriers have had to pay out over the past several years.
Another maintenance issue is that many property owners, over the years, have utilized insurance as a means to complete deferred maintenance. They wait until something goes wrong, and then file a claim to cover the costs of necessary repairs. I even know some property owners who have made it a practice to request insurance coverage for maintenance work by making the required work appear to be the result of a coverable claim. Such pass-the-buck tactics have had a substantially negative impact on insurance company margins.
We can easily shake an angry finger at insurance carriers, blaming them for the current state of the insurance market. Yet, we ourselves must accept some responsibility for our predicament. Frivolous or unnecessary claims, along with the belief that insurance companies are banks from which we can withdraw maintenance funds seemingly at will, have played a huge roll in destroying California’s insurance market. Although a majority of us are certainly innocent of this irresponsible activity, a relative few can create major problems for all of us.
The fact is that during the past several years the premiums paid to insurance companies have only covered 50 percent of total losses. In many cases, this percentage has been enough to bankrupt the carrier. Many other insurers took a look at California’s incredibly litigious climate and elected to take their business elsewhere. The remaining companies have had to face the reality of charging premiums not only to cover projected losses but also to help reestablish reserves that have been swallowed up by extraordinary claims and exorbitant judgments.
We each have to learn to take more responsibility for our own issues. This does not just apply to our efforts to be more conscientious about maintaining our properties, but also to our decisions regarding whether to file claims that may barely amount to a few dollars more than our deductibles. Remember that a $1,000 claim will actually cost the carrier much, much more in administrative and clerical fees and required reserves. The general rule that I try to follow is that if the claim amount or the cost of the repair is within 10-20 percent of the deductible, then I do the work and I don’t file a claim.
A substantial number of property owners must assume a little more risk, commit to preventive maintenance work, complete small maintenance projects themselves and adapt an approach that avoids using their insurance companies as banks for funding maintenance claims. If we use this tactic, then the recovery of the insurance market may come a little sooner rather than later. We must each do our own part to restore a healthy insurance climate for the benefit of our housing industry.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. Eric Andresen owns West Coast Property Management and West Coast Property Maintenance Companies. He is also the treasurer of the California Apartment Association's Executive Board and serves on the boards of many other leading housing industry organizations. Questions or concerns should be directed to SFAA at 415.255.2288. Copyright © 2003 San Francisco Apartment Magazine