HOA Insurance Coverage: 2023 State of the Market
For homeowners' associations, obtaining adequate HOA insurance coverage at affordable rates has become a significant challenge in recent years. While associations have always needed comprehensive insurance coverage, the present-day reality is that insurers are becoming increasingly wary of taking on such risks, driving up costs and reducing availability of HOA insurance coverage for everyone. With natural disasters and catastrophic events impacting insurance carriers more frequently than ever before1, the cost of obtaining coverage is on the rise. Associations that were once able to secure coverage easily at affordable rates are now grappling with severe price hikes, and in many cases, having to make difficult choices about the level of coverage associations choose to maintain.
In some cases, associations are not able to obtain coverage at all. If you’ve recently renewed your policy, you’ve likely experienced some frustration with this. You might also be wondering, “Our community is located in a low-risk area and has no history of claims against the association. Why are my insurance premiums increasing?”
Every year for the past 5 years, California has experienced an average of 7,000 fires that consumed roughly about 2 million acres. And when insurance carriers experience catastrophic losses like the ones seen in natural disasters, it affects all markets across the board, forcing carriers to be more selective with what they are willing to insure. For instance, recently, State Farm announced that they would not be insuring any new homeowners’ associations in the state of California. This is not unusual as most carriers have admittedly started sending out non-renewals to properties with any risk of wildfire.
Through our long-standing partnerships and relationships, FirstService Financial has access to a carrier offering an alternative coverage for high brush zone/wildfire risk, a unique program offering separate wildfire limits, where the Association can choose what wildfire limit is right for their association, either a full limit or a lower option, regardless of the CoreLogic Wildfire score.
When it comes to insurance coverage for homeowners' associations, it's essential to understand the concept of reinsurance. Local insurance carriers provide only a portion of the total insurance coverage for your association to limit their loss exposure. Consequently, insurance carriers purchase reinsurance to increase the coverage they provide and meet client insurance needs. Notably, reinsurance carriers have increased their rates globally by 45% to 100%, and local insurance carriers are passing those costs onto their customers.
Given the increase in global catastrophic events, it’s essential for homeowners' associations to seek insurance solutions that provide comprehensive coverage. FirstService Residential's insurance team is well-equipped to provide guidance and support to help homeowners' associations navigate the global insurance market effectively.
According to Jamie George, VP of Insurance for FirstService Financial, “We've witnessed a decrease in both accessibility and affordability of HOA insurance coverage over recent years. The landscape of obtaining insurance policies for homeowners' associations has transformed significantly. About seven to eight years ago, it was commonplace to receive renewal rate quotes 30 to 45 days before the expiration date and receive multiple renewal offers from different carriers. Now, renewal rate quotes are issued a mere two weeks before the policy expiration date.” In addition, homeowners’ associations would typically request to see several quotes before renewing insurance policies; however, this practice is no longer considered the norm. With shrinking markets and carriers continually backing out of the insurance market, securing coverage has become an increasingly tricky affair. Out of ten carriers that may have issued proposals eight years ago, only two carriers may now offer quotes, further compounding the challenges faced by homeowners' associations.
State of the HOA Insurance Market
In addition, property insurance premiums have spiked up globally, and the U.S. is no exception. In early 2021, Jamie George predicted a 15% to 20% increase in insurance premiums as losses continued to mount. However, recent developments suggest that premium rates could rise further, with some predicting at least a 20% increase year-over-year. Whether this trend persists remains to be seen, but as things stand, property owners should prepare themselves for a steep hike in premiums.
Insurance companies have witnessed a substantial rise in the cost of both general liability and umbrella coverage due to an increase in the number of insurance claims on injuries and an escalation in the number of claims involving an attorney. Jamie George also notes that five to six years ago, claims on umbrella coverage were almost unheard of. The underlying limits of coverage were usually sufficient to handle most claims.
However, with increased injuries involving litigation, the underlying limits of liability are now being exhausted more frequently. This has led to a surge in the number of claims on umbrella coverage. As a result, obtaining adequate coverage for homeowners' associations requires new approaches given the changing landscape of insurance claims and litigation.
“Why do we need workers compensation insurance when we don’t have any employees?”
While most associations don’t have employees for which worker’s compensation coverage is required, this type of insurance is beneficial for association board members performing community duties where there is a potential for injury. In this case, worker’s compensation insurance would cover medical expenses associated with a volunteer board member being injured while performing association duties. In addition, worker’s compensation coverage would mitigate risk for associations that need to hire an attorney to defend themselves in the event that a vendor employee gets injured on association property and the vendor insurance lapses in coverage.
Obtaining a sufficient level of umbrella coverage is crucial when it comes to insuring homeowners' associations with common area amenities (e.g., playground or pool). Without this coverage, associations (and homeowners) may be vulnerable to significant financial liabilities. Proper HOA insurance coverage can help avoid costly lawsuits and protect associations from unpredictable events. It's essential to note that assuming residents will not sue a homeowners' association is misguided. Dispute claims and litigation against associations can arise due to a wide range of factors, the most common being accidental injuries. Therefore, Jamie George recommends at least a $5 million minimum umbrella coverage for most associations. Meanwhile, smaller associations may require lower amounts based on their unique needs and circumstances to be safe from potential liability issues. While larger associations may need to consider a higher limit.
The Risks of Not Having Umbrella Coverage
Accidental injury incidents can be costly for associations. These case studies demonstrate the potential consequences of negligence and oversight, as well as why it is important to exercise caution when operating any type of association-related activities or events.
Case Study #1 – A 150-unit single family home community was served with a costly lawsuit after an incident involving their noncompliant speed bump, which was a mere 1/8” too tall for regulation. Because of the noncompliant speedbump, the association was liable for millions in injury claims.
Case Study #2 – A resident of a 200-unit community sued their association for $20 million for failing to prevent their child from sustaining injuries from an improperly maintained swing set. Unfortunately for the association, they only had access to a maximum General liability coverage of $1 million - leaving the association responsible for the remaining $19 million.
FirstService Financial's insurance team has established relationships with broker partners in the HOA insurance industry across the United States. These brokers have been vetted by FirstService Financial's insurance team and are more likely to offer better HOA insurance coverage and premiums for clients. In California, FirstService Financial has three broker partners to place insurance policies for client associations and 29 broker partners across the country available at any time. We have a team of 35+ insurance leaders, insurance coordinators, and assistant insurance coordinators who work tirelessly to leverage their book of business (client base) for the benefit of individual clients. This means that FirstService Financial always goes the extra mile to place property insurance for clients who otherwise may not be able to renew their policy.
HOA Insurance Solutions for Your Association
Having access to multiple insurance carriers is essential to guarantee that you get the best possible coverage available for your homeowners' association. For associations without the support of an experienced insurance team, renewing their policy or maintaining the same level of coverage can be a challenge. However, with the help of a dedicated insurance team, associations can have peace of mind that their policy will be competitive and appropriate. FirstService Financial’s insurance team is connected to the FirstService Residential transitions team, which conducts detailed reviews of clients' policies to ensure that they have all six types of insurance essential for their community. By leveraging its significant network of insurance carriers, FirstService Financial guarantees that clients have the best possible access to insurance policies that meet their unique needs.
In conclusion, the process of obtaining adequate HOA insurance coverage for homeowners' associations has become incredibly complicated. However, with the assistance of an experienced insurance team like FirstService Financial, homeowners’ associations can overcome these challenges. By leveraging their broad network of insurance partners and conducting thorough reviews of existing policies, our insurance team can customize an insurance solution that aligns with your association's unique requirements.
With experience across all types of communities, FirstService Residential and FirstService Financial are well-positioned to help HOAs navigate the complexities of the insurance landscape, guaranteeing that community members remain protected and safe.
Contact your FirstService Residential community manager today to secure a comprehensive insurance package for your HOA and enjoy the peace of mind that comes with knowing that your homeowners' association is fully protected.
Disclaimer: This article is provided for information purposes only and does not constitute legal advice. Consult with your association attorney.
- Munich RE. 2022. “Natural disaster risks: Rising trend in losses”. Munichre.com. https://www.munichre.com/en/risks/natural-disasters.html