By Pat Wilderotter, CIRMS, Executive VP, CCIG
Welcome to Colorado with our 300 annual days of sunshine (okay, one hour of sun on a cloudy day counts as a sunny day). However, along with all our sunshine, Colorado is also known as “Hail Alley.” We flip back and forth with Texas as the hail capital of the country (Texas beat us in 2017 and 2019 but we won #1 in 2018). The hailstorm of May 8th, 2017 was Colorado’s most severe storm coming in at $2.4 billion. Consequently, following 2017 and 2018 we saw many standard markets’ carriers non-renewing coverages and exiting the habitational marketplace altogether. Those that remained generally went to a wind/hail percentage deductible anywhere from 10% to 1% of the building limit with a few offering a dollar deductible.
Whether under your personal auto insurance, your homeowner’s insurance, or your association’s insurance, you have probably seen higher deductibles on your policies for wind/hail coverage. If living in an association, these deductibles probably translate as a percentage deductible of the building limit.
For example, if your association buildings are worth $20,000,000 and you have a percentage deductible of 5%, then the association’s deductible is $1,000,000. Since most associations are not 100% funded under their reserves for items like roof replacement, and since buildings and roofs get hit by hailstorms long before they are due to be replaced, how do associations cover these wind/hail deductibles?
In a situation where the entire community is assessed for a deductible, coverage is generally available under the loss assessment portion of the HO6 policy. Loss assessment coverage is triggered when everyone in the community is assessed for an association’s deductible. In the example above, if there were 80 units in the community, each owner could be assessed up to $12,500. When assessed, each owner would submit their invoice to their personal HO6 agent for reimbursement. Do confirm with your personal agent that there is not a sub-limit if going to pay for an association’s deductible or that the coverage needs to be offered under a special endorsement. Adding adequate loss assessment coverage is relatively inexpensive under your HO6 policy, so just make sure your limit is adequate to cover your potential assessment. Also, most personal lines carriers go by the date of the storm, but a few go by the date of the assessment. If you are new to a community since a hailstorm went through, having a policy that is triggered by the date of the assessment is important or you are “out of pocket.”
There are some policies, generally through Lloyds of London, that offer a buy down product that will cover the wind/hail deductible down to a deductible like $100,000. These policies, however, are very expensive, have gone up significantly in cost over the past several years, and often cost as much or more as the package policy for the association. If the association does not want to have to raise monthly assessments to cover these buy down policies, the board and manager need to make sure each member is informed of their potential liability for the wind/hail deductible so that they can buy adequate loss assessment coverage.
Finally, remember that loss assessment coverage is not the same as special assessments. If an association does not keep up on maintenance and has to replace/repair common elements they are responsible to maintain, there is no insurance to cover that.
CCIG is a Denver-Based insurance brokerage firm. Pat Wilderotter, past president of the Rocky Mountain Chapter of CAI and one of approximately one hundred in the country to hold the designation of CIRMS (Community Insurance and Risk Management Specialist) heads their HOA team.