One of the most complex issues faced by HOA boards of directors is securing appropriate insurance coverage for the association. A number of factors go into determining what types of policies are needed, what can and should be covered by those policies, the amount of coverage needed and how to obtain the best rates possible. In addition, determining what needs to be covered isn’t up to the discretion of board members, but rather is determined by the association’s governing documents and sometimes even state statutes. The guidance of professional management companies and insurance agents who are intimately familiar with HOA insurance can be crucial to the success of board members when it comes time to renew policies.
Policy Renewal at a Glance
Most insurance policies can be expected to have an inflationary rate and coverages and replacement costs can be bumped up anywhere from 2-4% each year. There are of course, various policies at hand here such as property coverage, all-peril policies, flood, and wind and hail policies just to name a few. This can get quite complex, especially when talking about condominiums. The assets that are covered by these policies are going to be driven by the governing documents.
Though policies held by associations can run in tandem or run separately as far as renewals go, along the coast they are typically separate. As a quick reminder, master policies cover things like theft, fire and busted water pipes, for example. Most, but not all, exclude wind and hail damage in coastal areas. Wind and hail policies are for things like hurricanes and nor'easters. There are typically only a few markets to go to for wind and hail policies. In North Carolina, it’s the NC Wind Pool or the NC Joint Underwriters Association (NCJUA).
South Carolina also has a wind pool, formally called the South Carolina Wind and Hail Underwriting Association (SCWHUA) for wind and hail policies. However, most community associations in SC only utilize the wind pool as a last resort as they can often find broader, more reasonably priced coverage in the standard market.
Working Alongside Community Managers and Insurance Agents
If your association is working alongside a professional management company, the community manager will work closely with the board to obtain insurance policy proposals. It’s not necessarily a good idea to go out to bid on your insurance policy every single year especially along the coast because there simply aren't a lot of markets for the needed policies. When you're dealing with coastal properties, you're dealing with mainly independent agents who all have the same underwriting markets.
So, if you go to 3 independent agents for quotes, it becomes a sprint to insurance underwriter and the first agent to get there essentially locks that market up - the first one to get there renders the underwriters unable to provide quotes to other agents. Therefore, it is sometimes recommended that when you do have a narrow market, its best to find an insurance agent who is very knowledgeable regarding community associations and work with that agent to get multiple proposals from the underwriters. Because, again, they're all going to the same trough to drink.
We recommend finding an agent you're comfortable with and working with agents who are intimately familiar with homeowners and condominium owner’s association insurance and who aren't trying to piecemeal these packages together. Creating a product that includes property/casualty, general liability, directors and officers, liability, flood, etc., can get pretty complicated pretty quickly, especially when you have multiple buildings or high values that may lead into excess markets.
Another caveat is that board members may sometimes be tempted to go with the cheapest proposal they receive - when you're dealing with insurance, the cheapest premium is typically not the best value.
What do the Governing Documents Say?
Governing documents can get very specific about insurance requirements for an association, even so far as to say that the policy must be Moody Rated A+. This is why you need to find an agent who is familiar with HOA insurance because they will know the first step in securing an appropriate policy is to check the governing documents.
Simply put, the way some things must be covered isn't policy driven, but rather declaration driven. When a loss occurs, the adjustor will go out to examine it, but the first thing they will want to see is the governing documents. A policy could state, for example, that there is a million dollars of coverage over a certain item, but at the end of the day, especially dealing with a disaster policy, it will be up to the declarations - they work in tandem.
Furthermore, especially for condominiums, state statues can drive what is and isn't covered and can override even the governing documents. In North Carolina especially, the NC Condominium Act gets very specific regarding insurance coverage.
Overall, the best thing to take home when obtaining or renewing insurance coverage for your association is to employ the guidance of a professional manager and ensure that the agents you are working with are familiar with the area in which your community is located and that they are experienced in HOA/Condo association insurance. Also, take the time to familiarize yourself with the insurance related portions of your governing documents - it may save you some time and headaches down the road.