Ask the Experts: Rising Costs in Community Association Insurance

With rising insurance costs, budgeting can be a challenge!

Hear from our panel of experts about the current state of the insurance market. Watch the replay: Ask the Experts: Rising Costs in Association Insurance.

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Insurance costs are rising, and budgeting for higher insurance premiums has become increasingly challenging for associations. In our webinar, Ask the Experts: Rising Costs in Association Insurance, our panel discussed best practices for managing insurance premium increases. The discussion topics included:

• The factors driving higher rates

• The types of policies being affected

• Tips to help make your community marketable to insurance carriers

• And more

FirstService Residential strives to meet and exceed the expectations of its customers, and providing boards with information about insurance industry trends is essential to our mission of maximizing property values and enhancing residents’ lifestyles. Read on to learn more about why insurance costs are rising and what associations can do to manage higher premiums.

The Factors Behind Rising Insurance Costs

Natural Disasters

Many factors drive insurance costs, but to understand where we are today, we need to take a step back and examine what has happened over the past few years. In 2015 and 2016, multiple insurance carriers were available in the marketplace, and rates were low, making it a great time to shop for insurance. Many associations could reduce their insurance premiums by 40% or 50% during this time. However, the market began to change in 2017 when Hurricane Irma hit the Southern United States, causing billions of dollars in damages. Soon after, insurance companies began to see an increasing number of claims. Their associated fees for these and other disaster-related claims are passed on to consumers.

Litigation

A wave of litigation and fraud is forcing Florida's property insurers out of business. In response, some insurers opt not to renew specific policies, refrain from writing new business and raise premiums for the policies they will write or renew. As a result, community associations have fewer insurance options and are being forced to pay exorbitant premiums or accept expensive policies from last-resort insurers.

Supply and Demand

The number of insurers is no longer abundant, yet the demand for insurance continues to rise. This lack of supply, coupled with growing demand, has led to some remaining carriers raising their rates or limiting the amount of insurance they are willing to offer.  

Collapse of the Champlain Towers South in Surfside

Although property insurance premiums were on the rise before the collapse of Champlain Towers South in Surfside in 2021, the recent $1 billion settlement for the families who lost relatives or homes will likely push them even higher.

Want to learn more about the legislation passed in Florida to alleviate rising insurance costs? Read: 2022 Special Session Update: New Laws Impacting Community Associations

An Overall Increase in Property Values

Insurance carriers provide appraisals based on the cost of construction materials like steel and lumber. Factors like inflation have caused the cost of these materials to increase, leading to higher property values. The higher the property value, the higher the insurance premium.

Types of Policies Being Affected

"Rates are increasing across the board for condo and community associations,” said Josh Williams, director of insurance at FirstService Residential. “Property, general liability and umbrella coverage rates are all increasing, with some carriers even adding separate wind deductibles.”  Carriers have also become more selective in who they will insure, with some requiring full engineering reports before providing the association with a quote.  

“Carriers are scrutinizing everything, including boards’ meeting minutes and vendor contracts,” said Pamela Malfavon, director of financial products and services for FirstService Financial. “Carriers want to ensure the buildings they cover are sound.”

Tips for Making Your Community More Marketable to Insurance Carriers

As underwriting has become more restrictive, what can you do as a board member to make your community more attractive to insurance carriers?

1.    First, stay connected.

The first thing you can do is stay in close touch with your insurance agent. They are the ones who have the specifics about the history of your building or community and will be your best resource for information and strategies to control premiums. You should also learn from them what information is needed to receive a quote. "Board members should contact their insurance agent months in advance to understand the conditions and requirements from carriers to secure quotes for their community," said Malfavon. "Some carriers won't provide a quote until specific documents are provided, so being proactive, asking questions and having regular conversations with your agent well in advance is important."

2.    Second, find out if your property needs a new appraisal.

Property values have increased significantly in recent years, so your property may need a new appraisal, especially if it has been a while. Also, carefully check the details on past appraisals, particularly the square footage. If the listed square footage is higher than the actual square footage, that will result in a higher valuation for the property, and a higher premium. Therefore, it might be a good idea to start from scratch by getting an inspection and then a new appraisal.

3.    Third, maintain a record of all building updates.

Carriers will want to know about any updates or changes to your property. Even minor roof, electrical or plumbing updates should be noted. If you've installed impact glass or shutters, you'll also want to share this information with your agent. Agents are responsible for presenting your association in the best light to the insurer, providing it with the information it needs to feel comfortable insuring your property.

Budgeting for Higher Premiums

When should boards start the bidding process and how can your association budget for higher insurance premiums?

“Since property insurance is a major budget item, I recommend that our boards begin the research process during the budget planning phase, which typically starts in July,” said Keith Sensabaugh, vice president at FirstService Residential. “Property insurance can be a complex buy and is a large business decision for associations, so it’s important to give your board enough time to understand it clearly.”   

Insurance underwriters require a lot of information, and it can take some time to prepare a quote. And because there are a limited number of carriers in the market handling numerous quotes and renewals, the bidding and quoting process can take much longer than expected. Getting started early – at least 150 days before your policy's renewal date – will give your board enough time to receive a quote, so it isn't scrambling at the last minute.  

If your association is considering switching insurance carriers to secure a better deal, keep in mind that switching doesn’t always work to your association’s benefit. Your community may already have the best deal available.

A professional property management company will work with your board to ensure you have the best rates, setting your community up for successful policy renewal.

“Our role at FirstService Financial is to provide guidance for the communities managed by FirstService Residential, review options and advise the board on the best policy for their community,” said Malfavon. “We’re here to point our clients in the right direction.”

When budgeting for premiums, if your association finds that it lacks the cash it needs to pay for them, consider alternative financing options. Opening a line of credit or securing a loan may be options you want to explore. Remember that reserves shouldn't be used for property insurance because it is considered an operating expense, but you can consult your association's attorney if you believe your community has a unique set of circumstances.

FirstService Residential is committed to continuing to provide the exceptional service and management and financial solutions expected by the boards we serve. Contact us today for more information on how we can assist your association with managing soaring premiums.