HOA Insurance Cost: Getting the Coverage You Need
Protecting your community with adequate insurance coverage is one of your key responsibilities when you serve on your homeowners’ association (HOA) board of directors. At the same time, you also have a duty to keep down costs so that HOA money can go farther.
“You want to be sure that you are getting the coverage you need to protect your community in the event of a loss,” explains Jamie George, insurance product manager for the West/Texas regions of FS Insurance Brokers. “But insurance is a significant budget line item, so it’s important to see if there are ways you can save money, too.”
With the cost of insurance in Arizona always changing, is it really reasonable to expect to pay less for the coverage you currently have—or for even better coverage? How can you be sure that you aren’t putting your community at risk if you switch insurance?
An experienced community management company can help you find the right insurance at the lowest price to meet your HOA’s unique needs. In addition, we recommend following these tips.
1. Re-evaluate your insurance policies regularly.
Insurance prices can change each year, so it’s important to review your policies regularly, just like you do with your reserve study. This enables you to determine whether you are getting the best price for your coverage.
An insurance professional you know and trust—especially one that is affiliated with a national community management company—can be a real help. First, you’ll have someone knowledgeable reviewing your coverage needs with you. In addition, you’ll be able to get better premium prices because of the buying power of a national firm. FirstService Residential provides this kind of service through its affiliate company, FirstService Financial, which offers banking and insurance products.
2. Work with an insurance professional who knows HOAs.
HOA coverage is a specialized area of insurance, one in which many insurance professionals lack experience. Do not settle for someone who is not an expert. Check that the broker has worked with a large number of similar communities. Also look for someone who has earned the Community Insurance and Risk Management Specialist (CIRMS) designation from the Community Associations Institute (CAI), a membership organization that serves communities and homeowners.
3. Be patient when shopping around.
If your board takes on the task of reviewing your coverage, expect the process to take time. On average, it can take between 90 and 120 days to buy the appropriate mix of insurance policies. First, each request must go out to bid. Carriers can only handle a single bid at a time, which means that only one broker can access it in the beginning. To work with multiple insurance agents requires assigning a carrier to each one. Not surprisingly, this can be complicated without the help of a good community management company.
4. Invest in liability coverage.
Full protection for your HOA, your board and your residents requires more than just standard property insurance, which only covers tangible assets like residential buildings and common areas. In addition, you need to ensure that you are covered against third-party claims (bodily injury and property damage claims). A liability, or umbrella, policy provides this type of coverage.
5. Make sure your directors and officers are covered, too.
HOA directors and officers need to be protected against legal damages, so you should have a directors and officers (D&O) liability policy. This policy should include third-party discrimination coverage for occurrences of abuse, slander and wrongful termination.
Be aware that unlike most types of liability insurance, which are “occurrence based,” D&O policies are “claims based.” Occurrence-based policies cover you if the event happened while the policy was in force, regardless of when the claim is filed. Claims-based policies only cover you if you have the policy at the time the claim is filed.
6. Don’t pinch pennies by foregoing other necessary insurance.
Many HOAs believe they do not need workers’ compensation insurance if they do not have employees. However, workers’ compensation also covers you if a contractor you hired is hurt on the job. Fidelity insurance is another type of policy you should not forego. This provides coverage in the event of a theft. Both of these policies can help you manage risks and protect your community from legal exposure.
7. Consider the age of your structures.
Your property insurance only covers the cost of rebuilding a damaged building to its original standards. What if your building was constructed before current codes were in effect? You would have to get the building up to code, and the difference in cost would come out of your HOA’s pocket.
Fortunately, you can cover this gap with a policy called Building Ordinance & Law Coverage, Parts A, B and C. You need all three parts for full coverage:
- Part A treats a partial loss as a total loss so that your gap is covered by the “undamaged” portion of the building being covered under this coverage part.
- Part B covers the demolition costs associated with a covered loss.
- Part C bridges the gaps of increased costs of construction in instances when building codes have changed and upgrades and/or new systems are required.
Once you have completed your review and have found the appropriate coverage for your community, you can rest easy, right? Wrong! As mentioned earlier, insurance prices are always in flux, so an annual review can help you identify potential savings and areas you may have overlooked. An experienced community management company will know when there are new insurance products available that could benefit your HOA and where there may be gaps in your coverage.
Find out more about the value of reviewing your insurance needs with a community management company. Contact FirstService Residential, Arizona’s leading community management company.