Here's What to Know About Conducting an HOA Reserve Study
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.
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.”
1. Hire an expert
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.
When conducting an HOA reserve study, 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.”
2. Focus on value over savings.
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.
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.
3. Make sure gaps are covered.
When conducting an HOA reserve study, 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.
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.
4. Reduce risk as much as possible.
5. Learn about all relevant types of coverage.
Building Ordinance & Law
Workers Compensation & Fidelity
Directors & Officers Liability
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.
6. Avoid auto-renewal mistakes.
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.
7. Hire a good property management company.
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.