A New Earthquake Insurance Product For CA Condo Owners - Davis-Stirling
A New Earthquake Insurance Product for CA Condo Owners
Agenda1) Who/what is Motus2) Issues with existing condo earthquakeinsurance options3) How Motus solved these issuesMOTUS INSURANCE SERVICES1
Motus Insurance Services Developed a new “opt-in” earthquake insurance product aimed Condo associations –Allowing all condo owners to access commercial rates and coverages Handles distribution, direct-to-consumer or through exclusive relationships Works with insurers (Aegis, Lloyds) and their reinsurers to create and alter ourearthquake products to optimize underwriting integrity and marketability – Soon ICWor Nationwide will join Responsible for spreading earthquake awareness directly to property managers, HOAattorneys, exclusive retail agents, HOA boards, lenders and local/state officialsMOTUS INSURANCE SERVICES2
The Current ProblemThe responsible solution for California condoassociations that gives all unit-owners access tofull earthquake coverage and commercial ratesWhat is the Problem?95% of condo associationsdon’t have a masterearthquake policyUp to the condo owners to source itMOTUS INSURANCE SERVICES70% (1.8mm units) ofcondo owners don’t havean HO6 policyThey can’t access individual options3
Individual Condo EQ Insurance:Distribution ObstaclesCOMPANION POLICY REQUIREMENT Only 902,812 HO-6 policies were purchased in 2017 despite 2,787,278 condo units in California This means only 32% of condo owners could purchase CEA or other HO-6 EQ products– This means, 1,897,188 condo owners did not have access to individual earthquake insurance Condos represent 19.7% of the housing market yet only 9% of the EQ policies in force and 6% ofthe EQ premium68%No HO-6 Unaddressable32%have HO-690%CEA Agent /ParticipatingCarrier10%NonCEA140,000 EQcondopolicies inforceMotus has removed the companion policy constraint – but does require board buy-inMOTUS INSURANCE SERVICES4
Individual Condo EQ Insurance:Coverage and underwriting issuesCoverage and Product Limitations It is by far the most expensive product, by rate, in the residential market. Rates created byterritories not factoring in TIV or other relevant underwriting information. Since CEA can’t know a condo owners total insurable exposure for loss assessment they mustassume a total loss – Reason it is so expensive- Also they can’t prove their rates Loss assessment coverage is a commercial exposure **the critical coverage for condo owners** No insurers offer the possibility of full indemnity and most residential insurers only offer 5,000 100,000 of loss assessment coverage (two carriers offer no coverage) Excludes common areas, detached garages and foundations/underground piping Fractured sales and claims department for CEA work against a homeowner association and CEA No coverage flexibility to account for the uncertainty of the CC&Rs Can’t protect the HOA who shares an interest in the loss assessment coverage Does not make sense if the HOA does not rebuild. A big fear of condo owners who buyindividual earthquake insuranceMOTUS INSURANCE SERVICES5
The Motus Solution:Solving the pain points for Board Boards fulfill their fiduciary duty– Whether boards can and will be sued for not buying a master policyis undecided in the legal world. They should be fine however byenrolling in Motus, the board take a pro-active step to remove thislegal exposure. Motus, through their enrollments, helps boardsspread awareness about the earthquake risks facing theircommunity The HOA is a named insured– Being a named insured will help boards recover money necessary torebuild after an earthquake Budget Constraints– Keeping an HOA in financial good-standing is getting harder andharder. Having a democratic, “if you want you, you buy it”earthquake solution helps an HOA budget that can’t afford a masterpolicy (roughly 32,000 condo associations don’t have a master)MOTUS INSURANCE SERVICES6
The Motus Solution:Solving the pain points for unit ownersA BETTER SOLUTION FOR CALIFORNIA CONDO OWNERS Offer full indemnity limits for lossassessment and building coverage Distributed by insurance agencies thatspecialize in HOA’s In-house specialists reviews eachassociation’s exposures and builds aprogram for that HOA a Guarantees Cash payout if theassociation does not rebuilt. First productto do so for unit owners (we do not needa “loss assessment” trigger)APPROVED BY THECDI/DOI IN SEPT 2017MOTUS INSURANCE SERVICES Allows ALL unit owners to access tocommercial rates, master policycoverage forms Includes common areas and options forfoundations/underground pipes One master policy for all condo ownersthat sign up, “Opt-in” Rates will almost always at least matchCEA’s – sometimes as much as 8 timescheaperMotus went live in May of 2018 and can now offerearthquake insurance to more than 1.8mm California condoowners who could not previously access it7
The Motus SolutionBy enrolling in the Motus program, association boards help reduce their fiduciaryduty liability by making comprehensive earthquake coverage known and availableto all ownersMOTUS PROGRAMMASTER POLICIESCEA POLICIESCoverage for FoundationsCoverage for Shared Assets (e.g. Common Areas)Combined Loss Assessment and Building CoveragePrecision of Actuarially Sound UnderwritingOffers Full CoverageNo / Minimal Upfront Obligation for HOAIndividuals Can Opt-in** As a companion policy, CEA insurance is only available if the unit owner buys an individual fire insurance policy as well. Fewer than 3 out of 10 condo owners have an individual fire policy;therefore fewer than 3 out of 10 condo owners can access CEAMotus typically offers 3x the coverage at less than half the costAPPROVED BY THECALIFORNIA DEPT. OFINSURANCE (2017)MOTUS INSURANCE SERVICESBACKED BY AN INSURANCECOMPANY RATED “A-” BY AM BESTAND ADMITTED IN CALIFORNIA8
APPENDIX ASelected Case StudiesA
Case Study:Bay Area HOA Motus Proposal:– 350,000 of coverage for 543/year– Up to 430,000/unit available– Covers special assessments, interiordamage, foundations and commonareas 488 units with waterfront exposure Total reconstruction cost: 170mm– Average unit exposure: 350,000MOTUS INSURANCE SERVICES CEA Alternative:– 100,000 of special assessmentcoverage (max) for 1,211/year– 100,000 of interior coverage (max)for 472/year– Excludes common areas &foundations RESULT: Approximately 15% take-up inthe first year– 44 million in new capital availableto help rebuild after an earthquake10
Case Study:Downtown LA High-Rise Motus Proposal:– 430,000 of coverage for 1,235/year– Up to 520,000/unit available– Covers special assessments, interiordamage, foundations and commonareas 255 luxury condos in a 32-story highrise Total reconstruction cost: 105mm– Average unit exposure: 430,000MOTUS INSURANCE SERVICES CEA Alternative:– 100,000 of special assessmentcoverage (max) for 1,045/year– 100,000 of interior coverage (max)for 408/year– Excludes common areas &foundations RESULT: Approximately 15% take-up inthe first year– 18 million in new capital availableto help rebuild after an earthquake11
Case Study:Palm Desert HOA Motus Proposal:– 520,000 of coverage for 1,957/year– Up to 640,000/unit available– Covers special assessments, interiordamage, foundations and commonareas (including clubhouse) 500 single-story units,predominantly townhouses, plusclubhouse Total reconstruction cost: 250mm– Average unit exposure: 520,000MOTUS INSURANCE SERVICES CEA Alternative:– 100,000 of special assessmentcoverage (max) for 1,577/year– 100,000 of interior coverage (max)for 640/year– Excludes common areas &foundations RESULT: Approximately 20% take-up inthe first year– 40 million in new capital availableto help rebuild after an earthquake12
Case Study:Wine Country HOA Motus Proposal:– 200,000 of coverage for 720/year– Up to 250,000/unit available– Covers special assessments, interiordamage, foundations and commonareas 38 unit, 2-story HOA Total reconstruction cost: 7.6mm– Average unit exposure: 200,000MOTUS INSURANCE SERVICES CEA Alternative:– 100,000 of special assessmentcoverage (max) for 933/year– 100,000 of interior coverage (max)for 358/year– Excludes common areas &foundations RESULT: Approximately 35% take-up inthe first year– 3.6 million in new capital availableto help rebuild after an earthquake13
Case Study:Luxury Beverly Hills High-rise Motus Proposal:– 5.7mm of coverage for 8,500/year– Up to 7.1mm/unit available– Covers special assessments, interiordamage, foundations and commonareas 35 unit, 22 story luxury high-rise Total reconstruction cost: 200mm– Average unit exposure: 5.7mmMOTUS INSURANCE SERVICES CEA Alternative:– 100,000 of special assessmentcoverage (max) for 1,045/year– 100,000 of interior coverage (max)for 408/year– Excludes common areas &foundations This type of high-value condohighlights the issue with CEA’scoverage limit14
BAPPENDIX BAdditional Data- From DOI and Levy Erlander & Company
CA Residential EarthquakeInsurance Market (2017) Condos represent 19.7% of the housing market, however – They represent only 6.2% of total EQ premium (below is from DOI)– Only 902,812 condo HO-6 policies in forceTotal Premium(Excl EQ)# of Policies(Excl EQ)Total CEA CompaniesTotal Residental Market (Excl CEA)Total Residental Market (Incl CEA) 6,360,351,796 2,016,382,473 8,376,734,2699,420,9292,166,89511,587,824Total Homeowners MarketTotal Rental MarketTotal Condominium MarketTotal Dwelling Fire MarketTotal Mobile Home MarketTotal Residential Market (Incl CEA) 6,427,690,647 391,508,604 468,315,669 918,077,031 171,091,094 8,376,683,044 78,450,031 839,630,578 918,080,6092017 Experience YearCalifornia FAIR PlanTotal Dwelling Fire (Excl CA FAIR Plan)Total Dwelling Fire MarketAvg Prem Avg RatePer Policy (per 100)Total EQPremium# of EQpoliciesAvg Prem PerAvg RateEQ Policy (per 100)MarketShare % with EQ 675.13 930.54 722.89 0.25 0.22 0.24 688,378,185 408,110,741 1,096,488,9261,021,707296,1501,317,857 673.75 1,378.05 832.02 0.16 0.20 2,226,125902,8122,041,623264,89211,587,824 1,044.75 175.87 518.73 449.68 645.89 722.89 0.23 0.60 0.89 0.15 0.69 0.24 960,826,238 13,447,211 69,826,833 37,881,199 14,507,445 7,857 1,033.41 103.64 493.77 629.66 255.56 832.02 0.16 0.31 0.43 0.17 0.22 5.66%2.95%21.43%11.37%123,1691,918,4542,041,623 636.93 437.66 449.68 0.17 0.15 0.15 4,211,549 33,669,650 37,881,1994,44455,71760,161 947.69 604.30 629.66 0.19 0.16 0.177.39%92.61%100.00%3.61%2.90%2.95% Average EQ rates for condos are higher than any other class of residence– More than 2.5x those for single family homes (in reality, 3-5xhigher)MOTUS INSURANCE SERVICES16
Overview of the CA Condo MarketCalifornia Total2018 Census 1LG2VL1VL2UnclassifiedRange (Units)2 -56 - 1011 - 1516 - 2021 - 2526 - 5051 - 100101 - 150151 - 325326 - 500501 - 10001001 N/AAverage Size (est)Aggregate Number ssifiedRange (years) 0 25,000 25,001 50,000 50,001 75,000 75,001 100,000 100,001 200,000 200,001 300,000 300,001 400,000 400,001 500,000 500,001 N/AAverage Annual Revenue (est)Aggregate Annual Revenue (est)MOTUS INSURANCE SERVICES2018 DOF Housing 06,2033,2963,6698095905544,816% of 1.2%1.1%N/A94 Units5 million ,25529,395% of HOAs53,458AgeNewYNGADLMATOLDUnclassifiedHOA Units (est)5,002,905Range (years)0 -56 - 1011 - 1516 - 2021 N/AAverage Age (est)%HOA Units to Total Units35%Assns.3,2892,5707,8884,44933,3581,904% of Assns.6.4%5.0%15.3%8.6%64.7%N/A20 YearsDevelopment TypesCondominiumsCondominium ConversionsCooperativesTimeshare DevelopmentsPlanned Unit 0053,765% of Assns.54.1%10.0%1.2%0.4%34.2%N/ATotal"Condo" Subtotal(Excludes PUDs; includes 65.8% of 647304,6652,787,278% of Units59.3%18.9%2.2%19.7%Housing Unit TypesSingle Family HomesApartmentsMobile HomesCondo UnitsTotal14,157,590 238,000 12.9 billion17
HOA Data Gathering MethodologyLevy Erlander & Company“2018 Census Population” and “2018 DOF Housing Units” were obtained from the State of California Department of Finance E-5 Population and HousingEstimates for Cities, Counties, and the State, 2011-2017 with 2010 Census Benchmark report released in May 2018. This report provides revised January2018 Provisional population and housing estimates for the entire state of California. Housing units are based on American Community Survey (ACS) data andare estimated by adding new construction and annexations and subtracting demolitions, and adjusting for units lost or gained by conversions. The populationestimate is based on the 2010 census count, adjusted using data from distributions of births, deaths, driver licenses, public elementary school enrollment,labor force, and county-level housing unit counts. The detailed methodology for these estimates is available stimates/E-5/.“% HOA Units to Total Units” is obtained by dividing the estimated E-5 DOF Housing Units by the estimated total HOA Estimated units from the HOAdatabase, “HOA Info Est Units”. “HOAs” is the total number of associations in the region and comes from the HOA database.NumberAge“Number” represents the number of associations physicallylocated in the state indicated based upon information obtainedfrom subdivision public reports (filed with the California Bureau ofReal Estate), the State of California corporation master computerfile tapes/annual statement of officers prepared by thecommunity associations (and filed with the California Secretary ofState), or other industry sources. Previous editions of thispublication, prior to 2013 did not include nonprofit waterorganizations. The number of water organizations was 515 for2018.“Age” represents a stratification of associations according to their approximate ageas determined by reference to incorporation dates (from the Secretary of State) andsubdivision public report filing dates (from the Department of Real Estate). Forpurposes of computing the weighted average, it was assumed that the average ageof 21 year-old associations was 25 years.Size“Size” represents a stratification of associations according to theirbuilt-out number of units, as represented (primarily) in thesubdivision public report filed with the California Department ofReal Estate. The “average size” of an association is computed bydividing the aggregate number of units (for those associations ofknown size) by the number of associations of known size. Theaggregate number of units (overall - estimated) is computed bymultiplying the average size, just determined, by the totalnumber of associations.MOTUS INSURANCE SERVICESBuying Power“Buying power” (a.k.a. “annual revenues’) represents a stratification of associationsaccording to their approximate annual gross revenue based upon a combination ofactual current financial data, if available, and, otherwise, extrapolation of theoriginal “built-out” budget (as represented in the subdivision public report andinflated, on a compounded basis, at 4% per annum). The estimated “average annualrevenues” was determined on a weighted average basis.Development TypesDevelopment types are summarized by condominiums, condominium conversions,planned unit developments, cooperatives and timeshare developments. Included inthe foregoing stratification are business or commercial condominium and planneddevelopment projects.18
MOTUS INSURANCE SERVICES 8. Motus typically offers 3x the coverage at less than half the cost * As a companion policy, CEA insurance is only available if the unit owner buys an individual fire insurance policy as well. Fewer than 3 out of 10 condo owners have an individual fire policy; therefore fewer than 3 out of 10 condo owners can access CEA
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