With summer – and hurricane season – fast approaching, many community association Boards are asking themselves the age-old question – are we prepared to weather a storm? If your association is having a difficult time coming up with an answer, a good place to start is by assessing your existing insurance policies to verify that your community is adequately insured.
Most insurance policies offer a wide range of protections, but that doesn’t mean your community is fully covered in the event of a hurricane. High deductibles can pose a huge financial burden on a community association even with otherwise adequate insurance.
Here’s what every association should know to make sure they have the right coverage in place before June 1 and that they understand how that insurance coverage applies to protect their community.
1. Know What’s Covered
It takes a unique combination of coverages to fully protect your association and its residents should a storm hit. It starts with property insurance, which covers your community’s tangible assets, such as certain residential buildings and common areas. Keep in mind, this applies to communal property and not individual residences. Your property insurance policy will generally cover any damage that was the result of wind.
To ensure that they are covered in the event of a major storm, many communities purchase separate windstorm and flood policies. In certain areas, additional flood insurance is a requirement. One way to verify if your community is in a flood zone, and thus requires flood insurance, is to check your elevation certificate.
It’s a good practice to read over your policy and familiarize yourself with any limitations or exclusions. If there is any language in your policy that you don’t understand, ask your agent for clarification. This is not a time to be shy about asking questions!
2. Understand Your Deductibles
In simple terms, a deductible is the amount your association must pay before your insurance kicks in. It is the out-of-pocket expense that is the responsibility of the insured. Generally speaking, the higher the deductible, the lower the premium, and vice versa. For example, a policy with a high deductible will have lower monthly payments, but you will pay a lot up front in the event of any hurricane damage. On the contrary, a policy with a low deductible may result in higher monthly payments, but your out-of-pocket expense when a storm hits will be much lower.
It’s important to note that even those community associations that are properly insured may still face high deductibles. Boards would be wise to review their policies with their insurance agents to truly understand their exposure as it relates to deductibles.
While your property insurance policy may have a set deductible, hurricane and wind deductibles are calculated by taking a percentage (typically 3% or 5%) of the total insured value of the building or structure. So, if your building is valued at $50,000,000, a 3% deductible would result in $1,500,000 out-of-pocket expense.
State insurance laws and policy conditions will dictate when high-percentage hurricane deductibles are applicable. For example, sometimes the higher deductibles are only triggered when the damage is caused by a named storm that reaches winds of a certain speed (39 to 73 mph).
3. Have a Clear Understanding of the Claims Process
While each insurance provider has a different claims process, make sure your agent provides, at a minimum, an overview of the claims reporting process, the phone number to call if their office is not operational, a list of professionals who can assist with your claim, and guidelines on how to manage damage and loss. Claims processes for minor storms differ greatly from those for larger, catastrophic storms, so it is important to understand the process for both before a storm hits.
Once the storm has passed, your association should report the damage or loss as soon as practical. Delays in reporting may impact your claim or increase the time required to resolve it. In order to report your claim, you will need the full name of your association, contact phone numbers, your association’s policy number, the date of the damage or loss, the location of the property, and as much of the scope of damage as you can estimate. A major storm may result in major loss, so be sure to keep copies of your insurance policies electronically for access when filing a claim. Your property management company may be able to assist. FirstService Residential’s FSRConnect allows communities to upload their policies to ensure easy access later. Keep hard copies in several safe places as well in the event of extended power loss.
4. Make Sure Homeowners Have Adequate Coverage
What is your association policy regarding the insurance requirements for homeowners? Making sure that each home in the community is adequately insured will help the community recover more quickly in the event of a catastrophe, preserving the community’s property values and reputation. Proper insurance is usually the requirement of mortgage lenders, but cash buyers in your community, especially international investors, may not be aware of all the coverages that they need living in a hurricane zone.
An HO6 policy, available to condominium owners, can allow homeowners to subsidize the community association’s insurance deductible through a loss assessment limit. Explain this to your condominium membership; most people would prefer to let insurance handle the deductible than the cost being directly shared among the residents.
Ensuring that your community has the right insurance coverage may seem like a daunting task, especially for Board members that are not well versed in insurance. But in the event of a disaster or loss, having the proper coverage can make or break your community. Insurance is all about having the peace of mind that your investment – and that of your residents – is protected. Don’t wait until a storm is on the horizon to think about it. Take a proactive approach to your insurance coverage by calling your insurance provider and asking for clarity on the details and limits of your policy.
For more information on how to ensure that your community is adequately covered in the event of a major storm, contact FirstService Residential, North America’s premier property management company.
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