Are You Covered? Seven Guidelines for High-Rise Insurance
With great amenities, good security, and even concierge services, there are many advantages that are specific high-rise living. That’s why it’s becoming ever more popular. There are specific requirements and challenges when it comes to insuring a high-rise as well. High-rises have multiple residences, each with their 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. “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.”
So if you are a high-rise property owner, resident or board member seeking the kind of peace of mind and security that insurance should provide, start by making sure you have the proper coverage. Follow our guidelines to get the right insurance for your high-rise.
1. Get expert advice.
When shopping for insurance for your high-rise building, going to a random insurance broker may end up costing your more than you thought. “Time and again, we see agents who do not have experience in the high-rise condominium world, make big and often potentially costly mistakes,” Lester said. “An insurance agent who is familiar with the construction industry for example, is not necessarily an expert in high-rise buildings.” The reason? Condominiums are subject to unique laws, regulations and required coverages that can differ based on the state and the region your building is in. To insure your high-rise properly, find an agent with specific knowledge of the condo industry in your local market.
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).
2. Make sure the gaps are closed.
In a high-rise condominium community, the responsibility for insurance coverage falls on two parties: the association and the owner. Each has a specific accountability to cover certain aspects of the grounds and building. In the most basic terms, the association purchases the property and liability policies that apply to common areas. Those include the fitness center, lobby, pool and the bulk of the structure of the building, typically, from the “perimeter boundary walls out” of the individual units. Unit owners are responsible for covering everything from the finished surface of the “perimeter walls in.” Though the specifics can vary, a unit owner typically has to buy insurance to cover any upgrades beyond what your governing documents defines as standard unit, as well as any personal items.
3. Know that value matters more than savings alone.
Experts caution against any decision based upon premium alone. It is certainly possible for any association to find a policy at an extremely low cost. But there are things you need to consider: does the policy provide adequate coverage? Are there gaps that expose you to risk? Is the deductible onerous? Is the program even the right fit? A low-cost policy that leave you exposed to risk is dangerous.
Rather than looking at the bottom line alone, consider the value of your insurance policy – getting the best possible rate for the most coverage you can. If your policy isn’t strong enough to make you feel secure, it’s not worth it, regardless of the savings.
4. Examine all types of coverages
Unit owners need to purchase an insurance policy called an “HO-6,” which covers the “walls-in” contents of an individual unit. That policy has to cover any upgrade beyond the “standard unit” as outlined in your association’s governing documents. An HO-6 policy will package both property and liability coverage. It also includes what is called “loss assessment coverage.” Here is how that works: if a claim is made in any area that the association’s policy should cover, but there is still a high out-of-pocket cost, the association will levy a special assessment on the owners to help cover the difference. An HO-6 policy can partially cover that specific type of special assessment.
“The District of Columbia has recently enacted some major changes to the DC Condo Act,” according to Phil Pool, vice president for FirstService Residential. “One of the most significant changes is that it spells out that the unit owner shall have an HO-6 policy and that the unit owner's insurance is responsible for the master insurance deductible of up to $5,000 if loss originates from their unit, or more if the condo’s governing documents require it.”
Building Ordinance & Law
If your building was not built recently, it is more than likely that your city’s building codes have changed significantly since that time. If the building sustains any damage due to an insurable loss, your policy will only cover repairs to the structure’s original standards. That can mean you are stuck with a potentially costly shortfall to bring the repairs up to current code. A Building Ordinance & Law Coverage policy will cover these required upgrades.
Workers Compensation & Fidelity
Workers compensation and fidelity insurance (covering losses due to theft) are a wise move as well. Workers compensation covers employees and contractors, of course, and you can also choose to include coverage for volunteers through a Volunteer Compensation Endorsement. Crime coverage, which protects the association from certain occurrences of theft, is a coverage to consider. Coverage limits vary. If you bank account holdings are substantial, it is important to buy the right coverage that factors in all of your association assets.
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 in the event of a lawsuit against the association. Most common claims include a board’s failure to adhere to bylaws, disputes on architectural changes or vendor contract breaches. Directors & Officers coverage can be combined with Employment Practices Liability, which provides coverage in the event of claims by employees or third parties from discrimination, harassment or wrongful termination.
5. Conduct an annual review.
Don’t set your insurance on autopilot; automatic renewals can cost you money. Insurance policies for both the association and individual unit owners should be reviewed by an expert annually. Make sure your policy audit is conducted by a qualified expert in the field. Consult with your association’s attorney to be aware of any state laws regarding periodic reviews.
6. Reduce risk whenever 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 based upon the estimated cost of reconstruction in the event of a catastrophe, and you don’t have much control over that. Minimizing your risk is the only real option for controlling your insurance costs.
7. Hire a good property management company.
The right property management company will make all the difference. An organization with a national presence has the depth of capabilities to offer risk management insight, along with buying power, so they can negotiate lower rates from vendors on behalf of their clients. They can also connect your association with the proper insurance brokerage firm – one that has the extensive knowledge of the statutes and regulations that have a significant impact on the insurance products you need.
No one can predict disaster or loss, especially in a complex high-rise property. However, the right insurance coverage, for both associations and owners, can help you sleep better at night. For more on how to find that kind of peace of mind, reach out to FirstService Residential, the DC Metro area’s leading property management company.