If Disaster Strikes, Is Your Community Association Covered?
Hurricanes. Floods. Tornadoes. Hail. Wildfires. Lightning strikes. Earthquakes. Blizzards. Mother Nature has quite the surprises to throw at us! Sometimes, as happened with Superstorm Sandy in 2012, there’s some notice and time to prepare. But often, there’s no warning at all.
That’s why it is critical to the financial health of your community association that you have the correct insurance coverage in place.
What can happen if your high-rise building or community association common areas aren’t properly covered? Unfortunately, nothing good. Without the proper insurance in adequate amounts, your community may not be able to rebuild. You may need to take out loans or levy special assessments on homeowners, which will cause discord in the community and damage the relationship between the board and homeowners. Maintaining proper insurance in adequate amounts is not only a part of your financial responsibility, it is a significant part of a board’s fiduciary responsibilities.
Insurance is complicated, and it can be hard to understand. It’s important to know that you have an insurance broker you can trust to help your association board make the right decisions about insurance and get the right coverage. That broker must be up-to-date on all state requirements and regulations about insurance, as well as knowledgeable about your community and assets. Not all policies are the same. Insurance coverage isn’t static either. Insurance is viewed as a commodity, but policies and carriers can vary widely.
What else is important to know about or do to be covered in a natural disaster?
- Pay close attention to deductibles: “There’s either a percentage deductible or a dollar deductible,” Sean Kent, senior vice president, FS Insurance Brokers, East Region, explained. “The larger the deductible you have, the more you’re going to save on premiums, but in the event of a disaster, associations need to make sure that they budgeted appropriately for the deductible.”
- Get an accurate valuation on the property. Your broker or agent can’t help you properly insure your property without that – and your association can be penalized for being under-insured. Be thorough in listing and describing everything that needs coverage. Some brokers may require a recent appraisal or a reserve study.
- You must plan ahead. You can’t buy named storm coverage after a storm is announced, for example. Keep an eye on your reserve funds in case you need them in a catastrophe.
- Encourage high-rise homeowners (and other condominium owners) to have HO-6 policies which cover the contents of their units, and all homeowners to include loss assessment coverage on their policies. That coverage will provide funds to offset the association’s master policy deductible that may be attributed to an owner for a given loss or for a special assessment that may be necessary if the association’s insurance is inadequate to cover a loss. The cost to add loss assessment coverage is relatively inexpensive.
- Every policy is different, but review yours carefully with your agent or broker and be aware of any stipulations that need to be met in order for coverage to be in effect -- working fire alarms, sprinklers and smoke detectors, for example.
- Pay your premiums on time to avoid the risk of cancellation.
To find out more about how FirstService Residential, North America’s leading community association management company, can connect you with the right experts to guide your insurance coverage decisions, contact us today.