What Does Florida Hurricane Insurance Cover?

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?” and many associations are also wondering, "What does hurricane insurance cover in Florida?" If you are uncertain a good place to start is by looking at your existing insurance policies to make sure your community has the right coverage.

What are the risks if your community association isn’t appropriately covered? There are several possible outcomes - none of them good. The financial repercussions to your association’s operating budget are the greatest issue. Without enough hurricane insurance, your community may not be able to rebuild. Homeowners will face special assessments to cover the gap, which may lead to friction in the community and erode homeowners’ trust for the board. In a high-rise community, the association’s lack of insurance can cost people their homes.
 
Homeowners can also sue the board for not having the correct insurance in place. “It’s important to have an accurate value of the building on the policy," said Pamela Malfavon, director, FirstService Financial, the banking and insurance affiliate of FirstService Residential. "The association can be penalized for being under-insured.”
 
Hurricane insurance is complicated, and it can involve a lot of red tape. Having an insurance broker you trust is important in making sure your association is adequately covered. That broker must also be knowledgeable about your community and its assets, as well as the most common risks for your area. Additionally, it is essential your broker is up-to-date on all applicable state requirements and regulations.
 
So before the June 1 start of the Atlantic hurricane season, talk to your broker and make sure you are up to speed on the following:

1. Understand What is Covered and How Your Coverage Works

   It takes a unique combination of coverages to fully protect your association and its residents if a hurricane or tropical storm hits. 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, and make sure your residents understand that.
   
   Did you know there is named-storm coverage for hurricanes and tropical storms? Or that you can’t buy that coverage once a storm is named? Your property insurance policy will generally cover any damage that was the result of wind. Most disaster conditions are included in a policy unless they are specifically excluded. In most places, wind and hail are included. You must also, as soon as it’s safe, take steps to mitigate further damage: place tarps on roofs, boards over windows, etc., or your insurance company may not pay all of the claim.
    
   In certain areas, additional flood insurance is a requirement. One way to verify if your community is in a flood zone and requires flood insurance is to check your elevation certificate. As homeowners in the Houston area learned in 2017, flood insurance is a good idea even if you aren’t in a zone where it’s required by the government. A good insurance broker can help you get the best flood insurance rates possible for your community.
    
   Review your policies and make sure you understand any limitations or exclusions. If there is any language in your policy that isn’t clear, ask your agent to explain it. A common misperception is that “all perils” means nothing will be excluded from the policy. According to John Lee, vice president, FirstService Financial, “There is no such thing!”

2. Plan for Deductibles

   In simple terms, a deductible is the amount your association must pay before your hurricane insurance contributes to repairs. 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.
    
   “Many boards know the price of the policy but do not realize what their true exposure is because they have a high deductible in exchange for a lower premium,” Lee explained. “Most catastrophic coverage has huge deductibles and associations don’t have the cash reserves to cover them. They should be aware of the financial resources they will have access to in the event of an emergency and plan accordingly.”
   
   Review your policies with your insurance agent to truly understand what you’re looking at when it comes to deductibles and then budget to cover them. Malfavon recommends asking how your deductibles calculate: “Does the deductible reset annually or with each occurrence? That can make a huge difference in your out-of-pocket costs.”
    
   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.

3. Know How the Claims Process Works

   Ask your agent for 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.
    
   Dealing with your association’s insurance company is a huge part of recovery and often the most daunting to board members. Your property management company can take the lead role, from start to finish: initial notifications, preparation of records, coordinating with the claims adjuster and facilitating the process so your association gets the best possible settlement as quickly as possible. (Remember, after a disaster, adjusters in your area will have a backlog of work). During this time, your property management company will also compile and review all estimates and complete all the preliminary steps it takes before work can begin at your community. Board members can assist by photographing and documenting damage as they see it, making the process both more accurate and more efficient.
   
   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 Connect allows communities to upload their policies for offsite storage and easy access later. Keep hard copies in several safe places as well in the event of extended power loss.

4. Ensure 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 required by mortgage lenders, but cash buyers in your community, especially international investors, may not be aware of the coverage that they need owning a home in a hurricane zone. “There are several potential pitfalls. The most common is unit owners believing they do not need their own insurance, because the association carries insurance,” Lee said. “The second is the need for flood insurance in addition to property coverage.”
   
   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 who are not well versed in insurance. But having that hurricane insurance in place is critical to mitigate risk and protect your operating budget while recovering from a disaster. An experienced, knowledgeable broker will be able to review your policies and recommend the coverage your association needs.
 
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