Association insurance renewal can be challenging with premiums on the rise. Higher costs can strain an association’s budget and force the board to make difficult decisions. While some choose to cut back on insurance altogether, it is important to strike the right balance and ensure that the community is still well-protected.
Understanding Association Insurance Renewal and Rising Rates
Insurance premiums have increased for many community associations in recent years. There are several factors behind this phenomenon.
One major factor is the rising cost of construction, repairs, and maintenance. Construction materials, labor, and other building expenses have become more expensive. In response, insurance providers have raised their rates to incorporate these costs when claims arise.
Severe weather can also affect insurance rates. Hurricanes, floods, wildfires, storms, and other disasters are known risks for insurers. Associations in areas more susceptible to these weather events typically face steeper premium increases.
Additionally, an association’s claims history can affect insurance rates. If an association frequently files claims, particularly expensive ones, it signals to insurance providers that the community has higher risk exposure. This pushes them to raise HOA premiums.
Finally, the broader insurance market can also play a role. Insurance carriers might reduce their exposure to certain areas or types of properties. Others may stop writing certain policies altogether. With fewer available insurers, associations may find it more difficult to secure competitive rates.
Practical Tips on Association Insurance Renewal
Just because insurance premiums are rising doesn’t mean associations have no options. Here are some strategies for renewing HOA insurance in this climate.
1. Start the Process Early
Boards should begin the association insurance renewal process well before the existing policy expires. Waiting until the last minute puts time pressure on board members. If the HOA fails to secure an affordable rate, it may be forced to opt for the expensive option just to remain insured.
By starting early, HOA boards have enough time to talk to multiple insurance carriers. Boards can review proposals more carefully, ask questions, and negotiate terms.
Moreover, a head start can also provide time to address problems that could affect the renewal. For example, an HOA might need to complete certain maintenance projects before it can obtain a favorable rate.
2. Review the Association’s Current Coverage
To facilitate a productive association insurance renewal process, the HOA board should evaluate its current policies. The board shouldn’t just renew the same policy without examining it closely. The terms may become outdated, or the HOA’s needs may have changed.
The review should include an evaluation of all insurance policies, including property insurance, liability insurance, D&O insurance, and fidelity bond. Boards should also review coverage limits, deductibles, exclusions, and endorsements.
Furthermore, the board should look for unnecessary coverage. The association may still be paying for coverage that is no longer relevant to the community. This raises insurance costs without realizing it.
3. Get Multiple Insurance Quotes
Associations should obtain quotes from multiple insurance providers. Automatically renewing with the same carrier could cause the HOA to miss out on better options. Comparing proposals can show differences in pricing, coverage, and limits.
Keep in mind that cheaper doesn’t always equal better. A cheaper policy may offer lower premiums, but the HOA could face higher deductibles or more exclusions.
4. Consider Increasing the Insurance Deductible
A higher deductible may reduce an association’s insurance premium. This option can be worth considering when rates are increasing substantially. That said, it is important to determine if the HOA can afford the higher deductible. Jumping to this decision without examining the association’s financial position would be imprudent.
5. Strengthen Risk Management Practices
Better risk management can help reduce the likelihood and severity of insurance claims. It can also show to carriers that the HOA takes risk mitigation very seriously.
Here are some best practices for reducing risk in HOA and condo communities:
- Prioritize Preventive Maintenance. Boards should facilitate regular inspections to identify and repair problems before they worsen.
- Improve Security Measures. Depending on the community, this can include lighting, surveillance cameras, and controlled access.
- Enforce Financial Controls. Implementing strong financial controls can protect against theft, fraud, and similar crimes.
- Ensure Legal Compliance. Associations should comply with fair housing laws, local building codes, and governing documents to reduce legal risks.
- Implement Fire Prevention. Fire is one of the most common risks for HOAs and condominiums. Maintaining fire alarm systems, extinguishers, sprinklers, and other safety equipment is not only required, but it can also lower fire insurance premiums.
6. Review the Association’s Claims History
Board members should review the HOA’s claims history before the association’s insurance renewal. This will allow the board to identify patterns that may require attention.
For example, repeated water damage claims could indicate an issue with plumbing or roofing. If the HOA frequently experiences slip-and-fall claims, it may indicate maintenance or lighting issues.
Addressing the underlying cause can greatly reduce incidents and claims. This can put the HOA in a more favorable light for insurance carriers.
7. Keep the Association’s Property Information Updated
Insurers need accurate property information to assess a community. Boards should review details such as building age, size, construction materials, roof age, and improvements. They should also update replacement costs as the economy changes. Underinsuring the property could leave the association without enough money to fully rebuild after a major loss.
8. Don’t Sacrifice Critical Coverage Just to Lower Premiums
Rising premiums can tempt boards to reduce coverage or eliminate it altogether. This is a slippery slope, as the lack of insurance can expose the HOA to greater risks.
Plus, state laws and the governing documents often require insurance. For instance, in Illinois, condominiums are required to carry property insurance, general liability insurance, fidelity bond, and a D&O policy (765 ILCS 605/12).
Reducing coverage limits or removing certain policies may lower insurance costs today, but the association may have to pay for it in higher expenses later on. Board members must act carefully and in the community’s best interest.
9. Account for Insurance Costs in the Budget
Insurance is often one of the largest expenses in an HOA’s budget. When insurance rates rise, the budget can become lopsided, with the HOA board allocating more of its income to premiums.
To prepare for this, the board should adjust its revenue expectations. Raising dues or levying special assessments are common courses of action.
10. Communicate Insurance Changes to Homeowners
When insurance rates spike, HOA dues often go up with them. This can cause alarm among homeowners. To limit pushback and maintain transparency, the board should take the time to educate owners. Clearly communicate to them why dues are increasing and how insurance premiums are affecting the association.
In condominiums, if there are any changes to the master policy, the board should inform unit owners as soon as possible. This will allow them to adjust their own HO-6 coverage.
11. Work With an Experienced Professional
Association insurance renewal can be a complicated process. Self-managed boards may find themselves struggling, especially as insurance rates trend upward. For this reason, many communities are turning to an HOA management company for assistance.
Professional management companies know how to navigate the ins and outs of insurance policies. They also maintain a wide network of carriers, potentially giving access to discounts or more favorable pricing.
The Right Balance
Skyrocketing insurance rates can make association insurance renewal a major financial challenge. Fortunately, the strategies and tips above can help control costs while still maintaining adequate protection for the community. When in doubt, don’t hesitate to hire professional services.
Westward360 is a trusted partner for HOAs and condo associations across the United States. To get started on expert association management, contact us today or request a proposal online!
