Here's What to Know About Conducting an HOA Reserve Study



High-rises are hotter than ever! The amenities, convenience, security, access to exciting downtown cultural and business centers and even concierge services have made vertical living more appealing than ever. Of course, a complex high-rise has its, well, complexities, too, and one of those is insurance. Multiple residences require their own policies and the shared common spaces also require coverage.
 
Both high-rise association Board members and residents are sometimes unaware of the specific kinds of insurance coverage they need to stay protected. In those cases, when a loss occurs and you do not have the proper coverage in place, there can be an enormous financial impact on both homeowners and the association as a whole.
 
If you are a high-rise Board member, resident or property owner looking for the peace of mind that insurance is meant to provide, make sure you have the correct coverage for your needs. Follow our guidelines to ensure that you are properly insured.

1. Hire an expert

Don’t hire the first insurance broker you find online or who is recommended by a friend. “Time and again, we see agents who do not have experience in the high-rise condominium world, make big and often potentially costly mistakes,” said Andrew Lester, president of FirstService Financial, an organization that offers best-in-class banking and insurance solutions solely to FirstService Residential-managed properties. “Condominiums and high-rises come with unique requirements, laws, regulations and required coverages that vary based on region and state. Only agents with specific knowledge of that industry in your local market will have the right information and expertise to give your association the right guidance on insurance.”

Take the time to find an experienced insurance brokerage firm which has an extensive network of proven carriers in place, that specialize in your type of property in your region. They will be best suited to find the right coverage for your needs at competitive prices.

2. Focus on value over savings.

Experts such as FirstService Financial’s South Region Vice President, John Lee, cautions against making a purchasing decision based upon premium alone. “It is certainly possible for any association to find a policy at an extremely low cost,” he said. “But does the policy provide adequate coverage? Are there gaps that expose you to risk? Is the deductible onerous? Is the program even the right fit? These are the questions you and your association Board should be asking.”
 
Rather than looking at just the final price, Lee recommends considering value – getting the most coverage at the best possible rate. Insurance is meant to provide peace of mind. Focus on getting a policy that provides that, even if it isn’t the least expensive one on the market.

3. Make sure gaps are covered.

In a high-rise condominium community, the responsibility for insurance coverage falls on two parties: the association and the owner. Each has a specific responsibility to cover certain aspects of the grounds and building. In general terms, the association is responsible for the liability and property policies that cover the common areas such as the pool, lobby and parking garages, as well as the general structure of the property. In most cases, this means “from the perimeter boundary walls out” of the individual units. It is generally the unit owner’s responsibility to purchase coverage from the finished surface of the perimeter walls in. Though the details may vary by state or by community, a homeowner usually must have insurance to cover any upgrades that go beyond what is defined as a standard unit in the association’s governing documents. This may include upgraded flooring, cabinetry, countertops, fixtures and appliances, as well as any personal items.  

The specifics of an association’s insurance policy and requirements will vary from association to association. Owners need to be aware of what the association covers, so they can get a corresponding policy that complements that for complete protection. It should be a dynamic relationship.

4. Reduce risk as much as possible.

The price of your insurance policy is based on two factors: the value of what is insured and the risk involved. The value is based on what it would cost to rebuild your property in the event of a disaster, so this is not a place you want to try to cut corners or trim costs. The best option for controlling your insurance costs is minimizing your risk. A quality professional property management company can help you do that.

5. Learn about all relevant types of coverage.

HO-6 Unit owners purchase an insurance policy called an HO-6, which covers the “walls-in” contents of an individual unit, including upgrades beyond what is defined in your association’s governing documents as the “standard unit.” This policy packages property and liability coverage together. It also includes what is called “loss assessment coverage” in the U.S. Here is how that comes into play: if a loss occurs in an area that the association’s policy should cover and there is still a significant out-of-pocket expense, the association assesses the individual owners to help make up the difference. If this occurs, your HO-6 policy could partially cover this specific type of special assessment. 

Building Ordinance & Law

If your building was not recently built, another issue may come into play. It is more than likely that your city’s building codes have changed significantly since your building was originally constructed. If the building sustains any damage due to an insurable loss, your policy will only cover repairs to the structure’s original standards. In most cases, that means you will be left with a shortfall to bring the repairs up to code, and that can be surprisingly costly. An insurance solution for you to consider would be purchasing Building Ordinance & Law Coverage that specifically covers these required upgrades.

Workers Compensation & Fidelity

Workers compensation and fidelity insurance (covering losses due to theft) are a wise move as well. Workers compensation not only covers employees and contractors, but you can opt to include coverage for volunteers too—with the Volunteer Compensation Endorsement. Your Board should also consider purchasing Crime coverage, which protects the association from certain occurences of theft. Limits vary and bank account holdings can be significant, so it’s important to buy adequate coverage that factors in all association assets.

Directors & Officers Liability

For high-rise association Board members, you are usually required to purchase a Directors & Officers Liability policy. This coverage protects your Board and building staff from legal damages. Most common claims include a Board’s failure to adhere to bylaws, disputes on architectural changes or vendor contract breaches. Directors & Officers can also be combined with Employment Practices Liability, which provides coverage for claims by employees and third parties from wrongful termination, harassment and discrimination.

6. Avoid auto-renewal mistakes.

Have your insurance polices reviewed annually by an expert. This includes both the policies for the association and the requirements for individual unit owners’ coverage. Circumstances change over time and it’s important to make sure that your insurances keeps up with them. Make sure that audit is conducted by a professional who can advise you on any needed changes. Be sure to consult with your association attorney as well; there may be changes in state requirements for coverage or for requirements for periodic reviews of coverage. Your attorney will help you stay compliant.

7. Hire a good property management company.

The right property management company can be key to getting the right insurance for your association’s needs. An organization with a national presence has the breadth of capabilities to offer risk management insight. It will also have buying power to negotiate better rates for a variety of services on behalf of their clients. It will be able to connect your association Board with the right insurance brokerage firm, one that has the knowledge of regulations and statutes, as well as your industry and market, to get the best products and rates for you.
 
Nobody can anticipate disaster or loss, especially with all the complexities of living in a high-rise property. The right insurance coverage will help your entire community be prepared if it happens. For more on how to get the proper coverage for your peace of mind, reach out to FirstService Residential, Florida’s leading property management company.