With great amenities, good security, and even concierge services, there are many advantages that are specific to vertical living. Similarly, there are specific requirements when it comes to insuring it, too. High-rise condominiums have multiple residences, each of which needs its own policies, plus shared common spaces, which also require coverage.
“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.”
If you are a high-rise property owner, resident or board member looking for the peace of mind that insurance is designed to provide, the best thing you can do is make sure you have the proper coverage. Here are a few guidelines to follow:
1. Watch out for gaps in coverage.
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 in Pennsylvania, the association must insure the unit to replace it to condition it was conveyed by the declarant. Therefore, the association should catalog all original floorings, built-in cabinets, countertops, fixtures, etc.
Although specifics may vary from community to community, in most cases in Pennsylvania, it is the responsibility of the unit owners to cover all improvements and betterments as well as any personal property. The specifics of an association’s policy vary. Owners should be aware of what the association covers, so they can get a corresponding policy that ensures complete protection without any gaps in coverage. It should be a dynamic relationship.
2. Work with experts.
If you are a board member seeking to insure your community, going to just any insurance broker is not a good idea. Agents who do not have the right knowledge and experience in the high-rise condominium world can make potentially costly mistakes. The reason? There are unique requirements, laws, regulations and required coverages that vary based on region and state, which apply to condominiums. Only agents with specific knowledge of the condominium industry in your market will have the knowledge to take these specifics into account and insure your association correctly.
"I've had my fair share of major insurable losses over the years,” said Andrew Sytnik, Community Manager at FirstService Residential in Philadelphia. “Having a knowledgeable team is key. Each building is unique from a risk management perspective. I was lucky to have the right experts in my corner to help me guide our clients through those stressful times."
That is why it is best to partner up with an experienced insurance brokerage firm that can draw on an extensive network of proven insurance carriers that specialize in your region and your type of property, high-rise in this case, and will therefore be better suited to find the product that provides the right coverage for you (at a competitive premium, too).
3. Focus on value rather than price.
Experts caution against making any insurance decision based upon premium alone. Although less expensive polices are available, they may not provide adequate coverage or have gaps that you aren’t aware of or an onerously high deductible. Make sure that you and your community association ask all the necessary questions to obtain coverage that is the right fit, not just the best price.
Considering the overall value of your policy – 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.
Timothy Snowden, FirstService Residential’s Executive Director of High Rise Operations in Philadelphia, recommends that associations look for an insurance agency that advises both the association’s board, and its unit owners as well, on the most effective coverage. Snowden has identified that “in today’s market all owners need to know the insurance coverage on the building. A good insurance agent not only gets you the best coverage for the dollars but educates the association as well. This is basic risk management service that everyone should expect.”
4. Look at all types of coverage.
Unit owners, purchase an insurance policy called an “HO-6,” which covers the “walls-in” contents of an individual unit, including betterments and improvements not covered in association’s policy. This policy packages property and liability coverage together. 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. Further, unit owners need to be aware of the deductible carried by their association.
Snowden has observed that “a lot of unit owners do not understand that in Pennsylvania they may be required to pay the association’s deductible out-of-pocket before any repairs are made on their unit. It’s more important than ever that they know this because premiums have continued to rise and this has resulted in association’s raising deductibles as high as $10,000 to $20,000 per occurrence.” Unit owners should review all the provisions of the association’s master policy, especially deductibles, with their HO-6 provider to ensure there is no lack of coverage in the any area.
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.
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. The solution? Purchasing Building Ordinance & Law Coverage that specifically covers these required upgrades.
5. Review your coverages annually.
Insurance coverage for both the association and individual unit owners should be reviewed annually, by qualified professional. Check your state law as there may be provisions which require periodic appraisals. Your association’s attorney will also be available to make sure that your association is in compliance with the Pennsylvania Condo Act
and other applicable statutes.
6. Minimize risk 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 in the event of a disaster. That leaves you only one option for controlling your costs: minimizing risk.
For example, Philadelphia has seen a rise in water damage claims over the last few years. Do board members and unit owners know the location of the proper shut-off valve in the event of an overflow? Sean Kent, Vice President of FirstService Financial in Pennsylvania, suggests supplying unit owners with preventative tips such as when they need to consider a new water heater or replacing rubber washing machine hoses with steel-braided ones to help prevent problems before a claim results.
A knowledgeable and professional community association management company will be able to provide other suggestions about how to reduce risk throughout your high-rise.
7. Get assistance from a good community association management company.
The right management company will make all the difference. An organization with a national presence has the capabilities to provide risk management insight. It also has greater buying power, so the firm can negotiate lower rates on behalf of its clients. The community association management team can also put you in touch with the right insurance brokerage firm – one with extensive knowledge of the statutes and regulations that can have a significant impact on the insurance products that will work best for you.
Nobody can anticipate 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
, Pennsylvania’s leading community association management company.
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This article is provided for information purposes only. FirstService Residential is not an expert in the subject matter of this article, and this article is not intended to, and should not be construed as, providing expert advice. If expert advice is required to address a specific issue mentioned in this article, the reader should consult with a professional specializing in the subject matter after diligent inquiry regarding the professional’s qualifications, licensing, insurance, history of consumer complaints, and adverse civil or administrative actions.