The big condo boom: the rising surge in condo and co-op ownership gives agents and brokers the chance to fill in coverage gaps.

New condominium and cooperative owners can find themselves beset by problems they never envisioned. Many buyers, whether first-time or experienced, are not aware that they may have little, if any, protection against serious property and liability exposures in this market. This lack of knowledge, combined with the recent surge in ownership of condominiums and co-ops, provides insurance agents and brokers with an outstanding opportunity to educate and acquire new clients.

According to the National Association of Realtors, sales of existing condos and co-ops in 2004 reached a record 820,000 traits, representing 12.5% of all housing market sales, and more than a 12% increase from 2003. In 1989, only 280,000 condos and co-ops were sold.

While condo and co-op owners may face the same perils as house owners, the risks can be more difficult to manage. For example, condo and co-op owners who take every possible measure to prevent water damage can be susceptible to leaks and burst pipes in neighbors' units. Similarly, a fire can spread easily and damage multiple units.

These risks may be exacerbated when owners are away, especially where condos and co-ops are purchased as seasonal residences. Over time, undetected water damage progressively worsens, devastating furniture, flooring, electronics and other personal property. Unit owners can be held liable if the water damage spreads to adjacent units. Unoccupied condos and co-ops are also easy targets for thieves.

To help mitigate these risks, agents and brokers can encourage clients to have neighbors check their properties for appliances left on, pilot lights that have gone out, leaky pipes, open windows and unlocked doors.

Ownership of resort-location condos and co-ops also can leave clients vulnerable to geographical exposures. In the West, they can be exposed to brush fires, earthquakes and mud slides. Coastal properties may be susceptible to flooding and severe wind damage. Winter getaways can succumb to burst pipes and water intrusion from ice damming.

To protect clients' real estate investments and personal belongings, agents and brokers can explain insurance coverage options, pointing out common coverage gaps. Many condo owners do not think they need to buy property and liability insurance because their condo association's insurance will cover their losses, but those policies cover common areas of buildings, not the inside of units or their contents.

Even if clients purchase insurance, they may buy it to cover only furnishings and personal belongings, unaware that significant portions of the interior structure may be their responsibility in the event of a loss.

In recent years, condo association insurance has become more expensive and many condo associations have begun to purchase lower limits of insurance or higher deductibles. Low-limit condo insurance easily can be exhausted, if it is, all the property owners will be charged an assessment to cover the difference, and will be responsible for covering the deductible cost.

Furthermore, many condo and co-op owners do not realize that, under a master deed, they may be responsible for covering the cost of damage to the interior portions of their unit: kitchen cabinetry, appliances, bathroom fixtures, flooring, interior walls, ceilings, windows, exterior doors and electrical, plumbing and HVAC systems. They also may be responsible for additional fees resulting from damage to shared common areas.

Many unit owners who have purchased property and liability insurance are underinsured. According to a 2004 analysis of more than 250 units by Chubb's residential appraisers, condos and co-ops on average were underinsured by nearly $125,000. Insurance limits for personal property, including valuables such as jewelry and free art, also are frequently inadequate.

Agents and brokers can help clients determine an adequate amount of insurance by encouraging them to schedule an appraisal, which a few insurers provide as a complimentary service. Agents also can recommend that clients contact them to adjust their coverage limits if they decide to renovate their units.

When explaining coverage options, agents and brokers should consider all-risk coverage. This is a valuable alternative to named peril condo and co-op insurance policies that only cover specific perils. Insurance that reimburses clients for the full replacement value of personal property, instead of its depreciated value, also is important. By pointing out commonly overlooked risks, agents and brokers can help ensure that their clients' assets don't become a casualty of the condo and co-op boom.

Andrew McElwee, a Best's Review columnist, is executive vice president of Chubb & Son and chief operating officer of Chubb Personal Insurance, Whitehouse Station, N.J. He can be reached at [e-mail]