Buying the Best Insurance for Your High-Rise: Seven Tips
Because high-rise insurance is complicated, many association Board members and residents are unaware of the specific kinds of insurance that they need to buy to stay protected. If a loss occurs and the proper coverage isn’t in place in your high-rise community, both homeowners and the association as a whole may be hit with a financial impact.
If you are looking for peace of mind that insurance is meant to provide, while experiencing the joys of vertical living, make sure that you research and obtain the right coverages for your needs, whether you are a Board member, resident or property owner. The guidelines below will help you have the right coverage for the right situations.
Find the right professional for the job.Research for the right insurance broker. Don’t hire the first one recommended by a friend or the first name you find online. Agents who do not have experience in the high-rise condominium world may make large, potentially costly mistakes. Condos and high-rises have unique laws, regulations, requirements and required coverages that vary by both state and region. Only an insurance broker with the right knowledge of the high-rise industry in your specific, local market will know what coverages you need and have the expertise to guide your association on the right path.
Finding 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, will save you time and money in the long run. They will be best suited to find the right coverage for your needs at competitive prices.
Reduce risk whenever possible.Your insurance costs are calculated based on two primary factors: the value of what is being insured and the risk involved with it. Since value is determined by the cost of rebuilding your property in the event of a disaster, this is not a place you want to undervalue or cut costs. Instead, try to reduce your insurance costs by minimizing risk. A quality, professional property management company will be able to help you do that.
Look at value, rather than savings.FirstService Financial is an organization that offers best-in-class banking and insurance solutions solely to FirstService Residential-managed properties. John Lee, FirstService Financial’s South Region Vice President, recommends looking at more than the bottom line price when making a purchasing decision. Look at more than the premium cost. “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.
Lee recommends considering value over premium alone. That means getting the most coverage at the best possible rate. Insurance is meant to provide peace of mind. Look for a policy that provides that, even if it isn’t the cheapest one available.
Make sure your coverage is complete.In a high-rise condominium community, the responsibility for insurance coverage falls on both the association and the unit 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 specifics may vary by state or by community, a homeowner generally must obtain insurance to cover 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. This must be an open, two-way relationship.
Research the types of coverage you need.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.
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.
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.
Conduct annual coverage reviews.Have your insurance polices reviewed annually by an expert, including both the requirements for individual unit owners and the policies for the association. It’s important to make sure that your insurance keeps up with changing circumstances, such as a dramatic increase in property values due to a capital improvement. Have the audit conducted by a professional who can advise you on any needed changes. There may also be changes from time to time in what your state requires, so consult with your association attorney as well. Your state or province may also require periodic reviews of coverage and your attorney will help you stay compliant.
Get the right community association management partner.The right community association 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 to help reduce your insurance costs in some areas.
That organization will also have buying power to negotiate better rates for a variety of services, including insurance and other financial products, on behalf of their clients. It will be able to connect your community 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.