Weather a Texas-Sized Storm with the Right HOA Insurance

As we say in Texas, “If you don’t like the weather, just wait; it will change soon enough.” Yes, the weather can be fickle in our state, and we Texans do enjoy discussing its variable nature. For members of a homeowners association (HOA) near the Gulf Coast, the conversation this time of year probably turns to the likelihood of a major storm, hurricane or “gully-washer.” And if you are on your HOA’s board of directors, you may also be posing the question, “Is our community prepared to weather a big storm?”

If your board isn’t sure of the answer, assessing your existing insurance coverage to verify that your community is adequately insured is the first step you’ll want to take. Although most insurance policies offer a wide range of protections, this doesn’t ensure that your community is fully covered in the event of a major storm like a hurricane. Here are some tips for your HOA board to help you make sure your community has the right coverage in place.

1. Understand what’s covered by your HOA’s insurance – and what’s not.

It takes a unique combination of property coverage to fully protect your community in the event of a storm. Property insurance covers your community’s tangible assets, such as common areas and certain buildings. Keep in mind that the community’s property insurance applies to communal property and typically not to individual residences. However, in some properties – such as condominiums – the association could be responsible for some aspects of each unit. Be sure to check your governing documents carefully for specific legal obligations.

Your HOA’s property insurance policy will generally cover damage resulting from wind, but here in Texas high winds are often accompanied by rain. For that reason, it’s important to make sure that your policy provides coverage for wind-driven rain, something that is not always standard. This type of coverage provides additional compensation in case moisture penetrates through the cracks in window seals, even if the overall window remains intact.

In certain areas, additional flood insurance is also necessary. Verify whether your community is in a flood zone (and thus requires flood insurance) by checking your elevation certificate.
 
It’s good practice to read your policy carefully and to familiarize yourself with any limitations or exclusions. If there is any language in your policy that you don’t understand, ask your agent for clarification. This is not a time to be shy about asking questions!
 
2. Don’t overlook deductibles.

A deductible is the out-of-pocket expense your association must pay before your insurance kicks in. Generally, the higher the deductible, the lower the premium. Even if your community association is properly insured, your out-of-pocket costs could still be high due to your deductibles. Review your policies with your insurance agent to understand your association’s exposure as it relates to deductibles.
 
Even when your property insurance policy has a set deductible, your hurricane coverage may not. Most hurricane deductibles are based on a percentage of the total insured value of the building or structure, usually one to three percent. For example, if your building is valued at $50,000,000, a three percent deductible would result in $1,500,000 in out-of-pocket expenses. Policy conditions will dictate when hurricane deductibles are applicable. Sometimes the percentage deductibles are only triggered when the damage is caused by a named storm.

3. Be ready for the claims process.

Although each insurance provider has a different process for filing claims, at a minimum your agent should provide your HOA with:

• An overview of the claims reporting process
• A phone number to call if the local office is not operational
• A list of professionals who can assist with your claim
• Guidelines on how to manage damage and loss

Once the storm has passed, your association should report the damage or loss as soon as practical. Delays in reporting may impact your claim or increase the time required to resolve it. To report your claim, you will need the full name of your association, contact phone numbers, your association’s policy number, the date of the damage or loss, the location of the property and an estimate of the full scope of the damage.  

4. Adequate coverage Is important for homeowners, too.

What is your HOA’s policy regarding homeowner insurance requirements? Make sure that each home in the community is adequately insured so that the entire community can recover more quickly in the event of a catastrophe. This will also help to preserve the community’s property values and reputation. Proper insurance is usually required by mortgage lenders. However, cash buyers in your community – especially international investors -- may not be aware of all the coverages that they need living in a hurricane zone.

“The association master policy provides only one part of the puzzle,” explains Taylor Bacot, area vice president for Arthur J. Gallagher & Co. in Houston. “And in the case of condominiums, communication between the association insurance agent and the unit owners is extremely important.” 

Bacot points out that condo unit owners should have an HO-6 (Texas condominium owners policy) rather than a renter’s policy to cover those aspects of the unit that they own. Unit owners should also ask their agent about adding – or increasing the limit on – loss assessment coverage. In most cases, this coverage will pay for an assessment levied by the association for the unit owner’s share of the deductible for an insured loss.

Not all HO-6 policies are created equally, however. Some insurance companies that write HO-6 policies in coastal areas have started to restrict their loss assessment coverage when used to satisfy the association master policy deductible. Homeowners should ask their agent if the quote they are providing has such restrictions. As always, it’s important to read the fine print and use an experienced agent.

Making certain that your HOA has the right insurance coverage may seem like a daunting task for board members who are not well versed in insurance coverage. But a little education – and the right support – can help ensure that you have the coverage you need to protect your community in the event of a major storm. Don’t wait until a storm is on the horizon to think about it. Take a proactive approach by calling your insurance provider and asking for clarity on the details and limits of your policy.

To learn how an experienced community management company can help your HOA find the right insurance coverage, contact FirstService Residential, the leading management company in Texas.