High-Rise Insurance: Seven Tips to Cover Your Property



High-rise living is on the rise! Security, great amenities, convenient locations and concierge services are just a few reasons that people are more in love with vertical living than ever before. Of course, all of that comes with its challenges too, and one of those is insurance. High-rise buildings have multiple residences, each of which needs its own coverage, and shared commons spaces, which also must be insured.
 
“We find that high-rise association board members and residents alike can sometimes be unaware of the specific kinds of insurance coverage they need to stay protected,” 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 covered properly, it can have a financial impact on the association and unit owners.”
 
Whether you serve on the board of a high-rise or simply live in one, knowing that you have the right insurance coverage can provide peace of mind. Follow our suggestions to help guarantee that you have the proper coverages when you need them.
 
1. Rely on experts  
Make sure that your insurance broker is a specialist in the high-rise condominium industry. Using an insurance agent who doesn’t have that experience can result in large, and potentially costly, mistakes. For example, an insurance agent who does single-family homes or works within the construction industry is not necessarily an expert in what is needed for high-rise buildings. They vary by state and region, but condominiums come with unique regulations, requirements, laws and required coverages. Only an agent with specific knowledge of the condo industry in your specific market will be able to take all of that into account and make sure that your association has correct coverages in the proper amounts.
 
2. Explore multiples kinds 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”. 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.
 
  • 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 and 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.
 
  • 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.
 
  • 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.
 
3. Minimize your risks when possible.
The cost of insurance is based on two things: the value of what is insured and the risk involved. The value of the insured property is a based upon the estimated cost of reconstruction. That leaves you only one option for controlling your costs: minimizing risk. A knowledgeable and professional property management company will be able to help.
 
4. Make sure coverage is complete.
In a high-rise condominium community, the responsibility for insurance coverage falls on two parties: the association and the owner. Each party has a specific accountability to cover certain aspects of the grounds and building. Put simply, the association purchases the property and liability policies that apply to common areas, such as the lobby, gym and pool, as well as the structure of the property, including, in most cases, from the “perimeter boundary walls out” of the individual units. It is the responsibility of the unit owners to cover everything from the finished surface of the “perimeter walls in.” Though specifics may vary from state to state or community to community, typically a unit owner will need to purchase insurance to cover upgrades beyond what constitutes a standard unit (as defined by your association’s governing documents) as well as any personal items.
 
“The governing documents of the association or cooperative specify what insurance coverage the association is required to provide,” said Andrew Batshaw, executive director with FirstService Residential.  “It is important that unit owners understand what is insured by the association, and where the coverage ends so that they can secure an HO-6 or condo insurance policy to protect their unit and their possessions.”
 
5. Shop for value, not savings.
“Less is not always best,” Batshaw said. “Associations can and will be quoted extremely low costs for coverage, but is the coverage quoted the right policy? Does it meet the requirements of the governing documents? Is the deductible inflated to reduce the premium? What is the carriers rating?  Will claims be handled timely and completely? Will the community manager and the board be supported? These are all questions that should be asked when considering if a policy is right for an association or cooperative.”
 
Rather than looking at the bottom line alone, Batshaw recommends considering value – getting the most coverage at the best possible rate. After all, insurance is meant to provide peace of mind, and if your policy does not give you that, even paying the lowest dollar amount is too much.
 
6. Avoid auto-renewal pitfalls.
Make sure that your insurance policies are reviewed by industry experts every year. Setting your policies to auto-renew can lead to inadequate coverage if your property values increase or there are changes in state requirements. Your state may have legal requirements to conduct periodic reviews of your insurance coverage, so it’s a good habit to get into.
 
7. Retain a quality community association management company.
Working with a professional management company will make all the difference in your association. A company with a national presence has the depth of capability to help manage and minimize your risks, as well as the buying power to negotiate lower rates on your behalf. They can also connect you to the right insurance brokerage firm – one that has extensive knowledge of the statutes and regulations that will impact both your insurance needs and the products that will work best for you.
 
No one can predict disaster or loss, especially with all the complexities of living in a high-rise property. But the right insurance coverage – for both owners and associations – can help you sleep better at night, knowing you are prepared for it. For more on how to find that kind of peace of mind, reach out to FirstService Residential, New Jersey’s leading community association management company.