Two kinds of letter tend to alarm condominiums (homeowners' associations): in one, the insurer announces that it is cancelling the building's contract at the renewal date; in the other, it announces a significant increase in the premium or the deductible for the next period. Behind both there is typically the same thing – the building's claims record is worse than the premium can carry – and both trigger the same mistake: the condominium manager (közös képviselő) puts the letter aside until the next general meeting of owners, after which all that is left is a scramble. As a broker, what I see is that these cases become expensive not because of the insurer's letter but because the deadlines are misunderstood. This article shows what the insurer can and cannot do, what a premium increase means legally, on what timetable the building can reach a decision, and where the pitfalls of re-insuring lie. Reading claims statistics is covered in the article on claims statistics, and the technical steps of switching in the article on how switching works – here we focus on the situation where the building is forced to act.
- Under Section 6:466 of the Hungarian Civil Code (Ptk.), the insurer can also cancel a contract concluded for an indefinite period, but only to the end of the insurance period, at least 30 days in advance and in writing – during the year, the building's policy can typically end only because of non-payment of the premium, cessation of the insured interest, or cancellation by the insurer due to a significant increase in risk; an ordinary cancellation therefore gives you time, not days without cover.
- A significant premium increase is legally a proposal to amend the contract: the building can accept it, offset it by changing the deductible or the cover, or ask competing insurers for quotes – if it does not reply at all, the consequence depends on the policy conditions: either the increased premium takes effect on the renewal date, or the contract ends – which is why silence is the worst answer.
- When re-insuring, the claims history must be disclosed truthfully (Ptk. Section 6:452), the decision requires a resolution of the general meeting of owners or an authorisation in the organisational and operating rules (SZMSZ), and the new cover must be aligned with the day the old one ends – it is the condominium manager (közös képviselő) who has to keep track of the renewal date; if you let me know before it, I prepare the comparison and the paperwork.
What the insurer can do – and what it cannot
Under Section 6:466 of the Hungarian Civil Code (Ptk.), either party may cancel an insurance contract concluded for an indefinite period to the end of the insurance period, at least thirty days in advance, in writing – this applies to the insurer just as it does to the building, and according to the guidance of MABISZ (the Hungarian insurers' association) it can be exercised without giving reasons. This has two consequences for the building. First, the cancellation does not take effect during the year: the cover remains in force until the renewal date, and until then the insurer settles reported claims in line with the policy conditions – during the year, the building's policy can typically end only because of non-payment of the premium, and the rules for that are described in the article on unpaid premiums. Second, there are at least thirty days between receipt of the letter and the renewal date – in practice insurers often send it earlier, but you cannot rely on that. If the right to cancel has been excluded in the contract for a fixed period in return for a long-term discount – the Civil Code allows this for up to three years – this restriction binds the insurer too; it is worth checking this on the policy. A premium increase is a different case. Indexation at the renewal date – if the policy conditions provide for it – is the adjustment of values under the contract, and its logic is explained in the articles on keeping values up to date. A premium adjustment that goes beyond this and cites the loss ratio, however, is either a right set out in the policy conditions (in which case the conditions describe what happens if the building does not accept it), or a simple proposal to amend the contract: the building can accept or reject it, and if it accepts nothing, the insurer can respond by cancelling. Which of the two applies to the building is decided by the letter and the policy conditions together – this has to be clarified first, because the deadlines depend on it.
Why does it happen, and what is the message?
The insurer measures the premium against the building's risk, and the strongest signal is the claims history: if for several years it has paid out more in claims than it has received in premiums – typically because of recurring escape-of-water losses from pipes and water ingress – cancellation or a premium adjustment is a business decision, not a punishment. There are alternatives too: the insurer may also propose a higher deductible, a limit on the frequent type of loss, or a loss-prevention condition (replacement of the riser pipes, a pressure test, proof of roof repairs), and the building itself can offer these to offset the premium increase. This is the point at which the owners' community has to take an honest look at its own building: another insurer will also see the poor claims history – according to the article on claims history, it is typically requested for several years back – so switching on its own does not solve the problem but only postpones it, if the cause of the losses remains in the building. With a higher deductible, scheduled renovation and orderly documentation, however, quotes can be requested from a different position.
The building's timetable in thirty days
The first step is to interpret the letter precisely: is it a cancellation or a proposal to amend, what is the date of termination or of taking effect, and what is the deadline for replying? The second is gathering the data: the policy and the policy conditions, the building's basic data and the list of claims – the policyholder can request a claims history certificate from the current insurer, and insurers typically expect one when asked for a quote. The third is requesting quotes from several insurers with identical data, so that the quotes can be compared; this is where the broker comes in, if the building asks for it. The fourth is the decision, and this is the bottleneck: the Condominium Act (Tht.) does not mention insurance specifically, but matters of the community are decided by the general meeting, and under the Tht. the invitation must be sent – except in urgent cases – at least eight days before the meeting; many buildings' organisational and operating rules (SZMSZ), however, authorise the condominium manager to take out insurance or allow written voting – the framework for this is described in the article on written voting. If the building can decide only at a general meeting, the notice period and the passing of the resolution take up the larger part of the thirty days, so the process has to be started on the day the letter arrives. The fifth is concluding the contract: cover under the new contract must begin on the day after the old one ends, and the policyholder, the insured parties and the building data must be shown correctly on the policy. The sixth is closing the matter: written confirmation of termination from the old insurer, informing the residents and, where there are mortgages, notifying the banks of the new policy. If the building ultimately accepts the premium increase, it should also notify the insurer of this in writing and make sure that the new premium has been recorded on the policy as well.
Pitfalls of re-insuring: disclosure and claims history
The answers given to the new insurer's written questions form the basis of the contract. Under Section 6:452 of the Ptk., when the contract is concluded the policyholder must disclose every material circumstance that they knew or should have known; they fulfil this duty by giving truthful answers to the questions the insurer asks in writing. If the duty of disclosure is breached, the insurer's obligation to pay does not arise – unless the policyholder proves that the insurer knew the concealed circumstance, or that it did not contribute to the occurrence of the insured event. For a building re-insuring after a cancellation, this means that previous losses, the fact of the cancellation and known defects (a critical riser pipe, a leaking roof) must be stated truthfully in answer to the proposal questions, even if this results in a more expensive or narrower quote. An omitted claims history comes to light at the worst possible time, when a large claim is being settled – and by then the building has been paying the premium all along. A further pitfall is that not every insurer will quote for a building with a poor claims history, or will quote only with a higher deductible, an exclusion or a limit; in that case the general meeting has to choose on content, not on the lowest premium, and has to carry out the loss-prevention measures, with documentation, before the next renewal date so that the building's negotiating position improves. Disclosure, signing and cancellation are the building's non-transferable duties – the broker prepares and compares in these matters, but the declaration is made by the policyholder.
What should the condominium manager do?
- On the day the letter arrives, clarify: is it a cancellation or a proposal to amend, what is the termination date, what is the deadline for replying – and put it in the calendar.
- Request the claims history certificate from the current insurer, and gather the policy, the policy conditions and the building's basic data.
- Establish from the SZMSZ who can decide: the general meeting, a written vote or an authorised condominium manager – and send out the invitation if a meeting is needed.
- Request several quotes with identical data and compare them on content (cover, deductible, limits, exclusions), not only on premium; consider a higher deductible and loss-prevention commitments as alternatives.
- The new cover should start on the day after the old one ends; notify the residents and the banks.
- If you let me know before the renewal date, I prepare the comparison and the paperwork – the renewal notice, the cancellation and the premium amendment proposal are sent by the insurer to the policyholder, so keeping track of the deadline is the building's responsibility.
The insurer pays only for what is an insured event under the building's contract – and only for as long as the contract is in force. A cancellation or a premium increase is therefore not a disaster but a task with a deadline: if you start on the day the letter arrives, you typically have time to make a good decision.
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Sources
- Hungarian Civil Code (Ptk.) Section 6:466 (cancellation), Section 6:452 (duty of disclosure and of reporting changes) – Act V of 2013
- Condominium Act (Tht.) – Act CXXXIII of 2003 on condominiums (general meeting, SZMSZ, written voting)
- MABISZ (the Hungarian insurers' association) – FAQ: How does cancellation at the renewal date work for an insurance contract?
