Steps You Need to Take to Make Your Condo/HOA Clients More Insurable or More Affordably Insured
I’m hearing it over and over, that insurance premiums are being hiked enormously and that Condos and HOAs are being dropped by their insurance carrier. Here’s some advice to give to your HOA/Condo Associations to help them save money and stay insured.
This is Epic and Nationwide
It’s not just on the nation’s coasts, and it’s not just in fire- or hurricane-prone areas. Condos and HOAs everywhere are struggling to insure affordably or at all. It’s happening, and it’s very significant. You’re seeing premium increases. You’re also seeing carriers demanding a per-unit deductible as opposed to one incident deductible. Carriers are requiring that, especially with Associations that have a history of property damage claims related to water. This is the most frequent insurance claim under the Association’s master insurance policy.
Here’s what I mean. Let’s say the Association, which has a deductible of $25,000, has water damage created by Unit A. The damage also spread to Units B, C, and D. In that case, the insurer would require your Condo Association to pay the deductible 4 times, totaling $100,000.
Condos and HOAs here in the Midwest are facing similar problems. You’re seeing challenges with both insurability and increasing premiums. Some Condos and HOAs are finding that, because of their loss history, they’re being denied renewals and then seeing cost increases of 20% - 200% in premiums when they seek coverage from other carriers.
6 Steps You Can Help Your Clients Take Now
Your HOA/Condo Association client isn’t powerless against these risks and hikes. There are short-term actions they can take, and there’s a long game you both can begin playing, too.
1. Tell your clients to tell the owners exactly what they’re facing. Be mindful of the Association’s budget and the way it communicates with its owners, being very transparent and clear, so there’s no shock and awe and it’s not facing a budget problem in the future. That doesn’t decrease costs, but it controls expectations, so the situation is less traumatic.
2. Tell them to increase the deductible. This isn’t great, but it’s often the surest way to save moneyif the Association doesn’t expect the building to be filing claim after claim. Some Associations are taking much higher deductibles. It means that, to get the premium down, the Association has to bear the direct financial risk of maybe the first $50,000 or $100,000.
3. Ramp up the maintenance game.Tell your clients to adopt preventive measures. For example, to help prevent water damage, make sure you tell your client to clear common areapipes as recommended by a plumber. More broadly, make sureyour client has a schedule of preventative maintenanceandis keeping an eye on it and not letting a pipe or water heater burst because they don’t have a maintenance schedule.
Also, your client should do occasional inspections with various professionals, and do a reserve study. Sometimes boards are afraid of what the reserve study is going to find. But it’s being a responsible fiduciaryto not kick the can down the road with respect tothe community’s maintenance and finances.
4. Make sure owners are keeping up their end of the bargain. I’ll admit this can be tough to police. But ensure that each owner has an HO-6 policy and enough coverage that might be mandated.
5. Shift responsibility to owners. There are two main issues I look at. The first is the Association’s governing documentsto see if there›s a proper delineation between theAssociation’s and the property owner’s duties. I’ve been seeing premiums going up because the documents require the Association to repair damage to a unit using insurance proceeds.
Maybe it’s a condo with many tenants, and maybe some are in college and don’t understand the maximum capacity for laundry. Mishaps can happen that are technically the tenant’s fault but fall to the Association to pay if its using insurance proceeds.
So, look at whether the documents are written in a way that minimizes or reduces the amount of coverage the Association must carry.
6. Beef up the building’s defenses.This is somewhat building-specific, because every community has a little bit different situation. But generally, installing storm windows helps to dramatically lower premiums. This is really expecting a property manager to be proactive with the clients to get the clients to save money.
It’s about making sure all the structural items are up to date and that things that need to be replaced, like the roof, are replaced. There’s a dramatic up-front cost for things like that. These are very expensive items. But when your clients run the numbers, they usually pay for themselves after a few years. They are usually a good investment.Again, this means you would have to be very proactive. But when your Association clients see how much money you are going to save them in the long-term, they’ll appreciate it.
Also, you should join my Facebook Group. And you should tell all of your Association clients to take a look at it and hopefully join. There’s a lot of very helpful information there about many topics of great interest to all HOAs and Condo Associations. My Facebook Group is called:
OMAHA HOA AND CONDO ASSOCIATION
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