Seven Guidelines for Finding the Right Insurance for Your High-Rise
Life in a high-rise building has a lot of advantages. Besides being convenient to energetic downtown cultural and business districts, high-rises offer great amenities, good security, and even personal concierge services. High-rises also have their own requirements and challenges when it comes to insurance, as well as other unique needs. Insurance must adequately cover the shared common areas such as lobbies, mail rooms and pool decks. Each owner must also have the right coverage for each individual unit.
“We find that both high-rise association board members and residents can sometimes be unaware of the specific kinds of insurance coverage they need,” said Andrew Lester, president of FirstService Financial, an organization that offers best-in-class banking and insurance solutions solely to FirstService Residential-managed properties. “And in those cases, when a loss occurs and you are not properly covered, it can have a financial impact on the association and unit owners.”
Making sure you have the correct coverage in the right amounts will help give you peace of mind, whether you are a high-rise resident, board member or property owner.
“Making sure the right insurance is in place for a condominium building is one of the best things a manager can do for their Board of Directors and owners. The majority of residents view their home as their largest asset and expect it to be treated as such. The residents want to know that if the worst were to happen, Management has the appropriate coverage for their building's specific needs.” - Katie Ruby, CMCA®, AMS®, regional director for FirstService Residential .
Follow our guidelines to make sure you are covered for any eventuality:
1. Reduce your risks.Your insurance costs are determined by two primary factors: the risk involved and the value of the items being covered. The value of the property that is being insured is determined by the estimated cost of rebuilding it, so that is never a place to try to reduce costs of insurance. Minimizing your risks, with the help of a professional property management company, is one way to help reduce the costs of your insurance.
2. Review your policies regularly.Never set insurance policies to renew annually without a review. Bring in an expert to audit policies and update requirements for homeowners if necessary. Always check with your association attorney for changes in your state’s insurance laws. There may also be state requirements for periodic appraisals of your coverage.
3. Look for complete protection.Both the association and the unit owner have specific responsibilities for insurance coverage in a high-rise community. Those responsibilities include different parts of the grounds and the building itself. In the simplest terms, the association purchases the liability and property policies that apply to common areas. Those include the lobby, pool, fitness center, the general structure of the building, parking garages and hallways – from the “perimeter boundary walls out” of the individual units. The unit owner must insure everything from the finished surface of the “perimeter walls in.”
Specific requirements may differ by state and community, but usually, the unit owner must obtain insurance to cover any upgrades beyond a “standard unit,” as outlined in the association’s governing documents, as well as the contents of the unit. In order to avoid any gaps in coverage, owners must be fully aware of what the association covers so they get a corresponding policy to that will provide complete protection.
4. Hire an expert.Insurance for a complex high-rise community requires expert advice. Going to just any insurance broker isn’t a good idea. An inexperienced insurance agent without high-rise experience may actually cost you money. There are unique requirements, laws, regulations and required coverages that vary based on region and state, which apply to condominiums. Only agents with in-depth knowledge of the condominium industry in your specific market will have the knowledge to take these factors into account and insure your association correctly.
To make sure you have the best partner on your side, find an experienced insurance brokerage firm with a network of carriers that specialize in your region and in high-rises.
5. Understand all types of coverage.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 occurrences of theft. Limits vary and bank account holdings can be significant, so it is important to buy adequate coverage that factors in all association assets.
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”. 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 those costs can be surprisingly costly. An insurance solution for you to consider would be purchasing Building Ordinance & Law Coverage that specifically covers these required upgrades.
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. Consider value, not just savings.
Experts warn against purchasing your insurance based on the premium alone. Although it is possible to find a policy at an extremely low cost, you must make sure that it provides adequate coverage in the right amounts as well. Are there gaps that expose you to risk? Is the deductible burdensomely high? Is the program even the right fit? Rather than looking at the bottom line alone, aim to get the most coverage you can at the best possible rate. An inexpensive policy may not provide the peace of mind that insurance is meant to offer.
7. Hire a good community association management company.A community association management company with a national presence will have the capabilities to offer insight on risk management. They will also be able to leverage buying power to negotiate better rates on financial products, including insurance, for their clients. They will also be able to connect you with the correct insurance brokerage firm, one with extensive knowledge of your local needs and property type.
No one can predict loss or disaster. But having the proper insurance coverage on your high-rise building – for both owners and associations – can help you sleep better at night, knowing you are prepared if it happens.
For more on how to find that kind of peace of mind, reach out to FirstService Residential, Maryland’s leading community association management company.