By Tressa Bishop, Alliant Insurance Services
Condo and HOA insurance hit the news headlines much more frequently in the past five years than the decade before. Between the COVID-19 pandemic impacts, several catastrophic weather-related losses in various regions of the country, and the Marshall Fire closer to home, carriers adjusted their rates, insurable values, premiums and deductibles to ensure profitability and (hopefully) avoid a downgrade by the rating agencies that track the financial health of carriers.
Although some carriers exited the community association insurance niche altogether, possibly having sustained losses too large for their actuaries and reinsurance partners to get comfortable with, the painful adjustments mentioned above worked. The ship began to right itself in early 2024 with commercial property markets softening and carriers offering improved terms, reduced premiums and more reasonable deductible options.
With improved carrier capacity and underwriters who are hungry to write new business, now is the time to perform a thorough review of your community’s insurance and risk management program. Each typical coverage line in the insurance program may have room for improvement and if you don’t ask, you may not receive all that is available in today’s market.
Property Insurance
For associations required to carry insurance on the community’s residential buildings, the property premium is typically the biggest piece of the insurance pie and the insurance budget line item ranks #1 in highest percentage of monthly assessment dollars paid by owners.
Check to ensure your current reconstruction classification fits the community. If there are only vertical boundaries between the units (townhome style with no upstairs or downstairs neighbors in any building), Row House may be a more appropriate classification than Condominium. The datasets for the most used replacement cost estimate software providers are updated multiple times a year and some locations have changed over time. The integration of AI has been very useful in this field and if your community has been with the same carrier or broker for years, with no one has “looking under the hood”, there may be an adjustment that can benefit the association.
In addition, if your community is only required to insure to the interior unfinished surfaces of the floors, walls, and ceilings (“bare walls” coverage), with all other improvements covered by each owners’ personal insurance policy, the reconstruction classification may be able to be amended to exclude interior improvements.
Check to see if blanket building coverage is available. Carriers who previously wouldn’t consider offering blanket coverage are trying to stand out from the crowd and may be able to offer this enhancement. In a very simplistic example, blanket building coverage would mean that the entire property limit for all buildings would be available at the time of loss, regardless of how many buildings were damaged instead of being limited to the scheduled amount per building shown on the Statement of Values (SOV) on file with the carrier. This used to be common with nearly all carriers but was more difficult to obtain during the most recent hard market cycle.
Check to see if a lower wind or hail deductible is available.Increased competition and a few years of lower-than-usual hail activity along the front range have caused a favorable shift in the wind or hail deductibles offered by many carriers. For the majority of communities in Colorado, the wind or hail deductible is a percentage of the total insurable value of each damaged building or of the entire property schedule, regardless of how many buildings are damaged. It is not the percentage deductible multiplied by the cost of the new roofs or the claim amount.
For a community with property coverage limit of $20,000,000 and a 5% wind or hail deductible, the association’s deductible at the time of loss is $1,000,000. If there are 100 owners in the association, each owner may receive a special assessment to cover that deductible in the amount of $10,000. Every percentage point reduction equates to a lower potential special assessment following a covered loss.
As with everything, there are exceptions, so the information provided herein assumes no large open claims or problematic building components (such as dated and fire-prone electrical panels or polybutylene plumbing). If your association falls into either of those categories, it is imperative to work with your selected broker to make an action plan as early in the policy term as possible to ensure a more favorable next insurance renewal.
Boards play a crucial role in the risk management strategy for their associations. Partner with your specialized insurance broker and arm them with the information to improve the insurance program and take advantage of the current market conditions.
Author Bio: Tressa Bishop, Senior Vice President with Alliant Insurance Services, is a CAI Community Association Risk Management Specialist (CIRMS®) who fiercely advocates for clients year-round. A staunch negotiator and passionate educator, she works closely with board members, HOA attorneys, and community managers to ensure a robust risk management program to protect the interests of the communities she serves.
