There comes a time in prosperous people's lives when the big house with the gardens, a four-car garage and maybe a pool and tennis court, while grand, fail to provide the cultural attractions and other amenities that come with living in a city. Perhaps the responsibilities of managing a substantial home have become too time-consuming, or closer access to medical care is wanted. These deliberations may guide the decision to purchase a condo or co-op apartment.
More and more Americans are doing just that, according to the U.S. Census Bureau. Urban areas accounted for a whopping 83% of the U.S. population in 2012, while the percentage of the country's urban population rose 12.1% between 2000 and 2010. High-rise apartment buildings now make up roughly 40% of all new construction, with the construction of single-family homes at its lowest point in decades.
These societal shifts create a new risk paradigm for homeowners, a subject I touched upon in last month's blog. People are in much closer proximity to neighbors who are literally above, below and on the other side of shared walls. They also confront the distinctive dangers of condos and co-op apartments, wherever they may be located, including heightened risks of burglary, abduction and automobile-related accidents and injuries.
Many apartment buildings, such as pre-war structures and so-called pre-pre-war (before World War I) in New York City, also are bound by strict rules governing the alteration of the environs. If a fire destroys the living room, for instance, replacing the former plaster and lathe walls with drywall will not be an option.
The myriad hazards presented by this new risk paradigm of home ownership must be identified, assessed for potential financial loss frequency and severity, managed through appropriate security and other measures and, finally, transferred to an insurance company that comprehends and fully absorbs these exposures. Not all insurance policies provide such broad coverage—for example, few would address the cost of replacing the aforementioned living room's walls with plaster and lathe.
These nuanced considerations are often on the mind of Tim Devin. As senior VP and New York personal risk management practice leader at broker DeWitt Stern Group in Manhattan, Tim serves a predominantly affluent clientele.
"Many city dwellers like the idea of living in a pre-war building with an impressive history and prestige," Tim commented. "Their high ceilings, thick walls, multiple fireplaces and ornamental millwork are stunning. But such buildings require approval of any changes to the interior by city historical groups, as well as the buildings' boards. If the interior is damaged, the costs from a claims perspective can be staggering. You need to have an insurance policy that absorbs the expense of renovating and replicating the interior as it previously was."
Unfortunately, many people are so excited by making the move to the city, Tim added, "that they fail to understand the stark differences in risk between their houses and the new apartment."
New Lifestyle, New Jeopardies
He makes a good point. As anyone who has bought a house or apartment can attest, the stress level is stratospheric. There are simply so many complications to attend to, from the reams of paperwork in financing the purchase to schooling considerations for the children, new electric, cable TV and other utilities to set up, and packing up a life's worth of home contents for the big move.
The latter alone is not for the fainthearted and is especially challenging to high-net-worth individuals because of their highly valuable possessions, such as fine art and collectibles. "Many older buildings don't accommodate the movement of large items like paintings and sculptural pieces through the hallways, due to the possibility of damaging the walls," Tim noted. "Frequently, large items have to be hoisted up to the apartment on the outside of the building, and windows removed to permit ingress. Few people contemplate such possibilities until they suddenly rear."
