Did you know? Insurance premiums are rising at an exponential rate (15% to 30% in many cases), with some associations struggling to obtain coverage. How will this affect you? 

In our virtual Q&A, The Uncertain Future of Association Insurance, FirstService Financial Vice President of Insurance Jamie George discussed what type of insurance coverage your association needs, the hardened markets and how to handle brush zones. 

Watch the video below to learn how to protect your board and association. 


1. What is causing the rate increases (particularly in the liability area)?

The insurance market is hardening in all areas, specifically for liability, property and umbrella coverage. Many associations face challenges in renewals, new placements and premium increases, and some carriers are withdrawing from the market altogether. As a result of natural disasters, there has been a tremendous increase in claims worldwide. In regard to liability claims, we are seeing higher attorney penetration, which typically drives up claims costs. The effects of COVID-19 will also affect the insurance market. We have yet to see this impact; however, we are seeing most carriers remove whatever coverage may have existed for communicable disease from their policy forms.

“We’re seeing a great hardening of the market right now due to global conditions (since reinsurance ties back to the global market). A lot of clients are experiencing premium increases, underwriting guidelines are tightening, and carriers are pulling out of the market. Claims, liability and litigation have all increased. To that end, association boards should be increasing their insurance line items by at least 10% and up to 30%, depending on their property type and if they’ve had losses.”

 -- Jamie George, Vice President of Insurance at FirstService Financial

2. What steps can your association take to mitigate these 15% to 30% insurance increases?

As mentioned, the hardening of insurance markets is a reality, and the result is that there are fewer options to mitigate the increased premiums. Associations can shop around for the best rates, but you don’t want to compromise your coverage for lower prices. This could end up being a much more costly approach. Evaluate your property limits to make sure your association is not over or underinsured. This step could (potentially) save your association thousands of dollars. You may also want to consider increasing your deductibles to bring the premium costs down. 

The most important thing you can do is be proactive and work with an HOA insurance expert to mitigate future challenges. For example, FirstService Financial assists nearly 4,000 FirstService Residential clients with the placement of insurance policies annually. Because of their expertise with association insurance, they can provide added value to communities and high-rises with education, loss control programs, policy review and analysis and support of the renewal process.

3. Is your association located on or near a brush zone?

A brush zone is an area of rough open land covered with vegetation, trees, and bushes flammable during wildfire season. The specific size of the zones is defined differently by the federal government, state and insurance carriers. For example, insurance carriers have their classification and rules regarding brush zones that may or may not match the state and federal requirements. It’s best to work with your insurance carrier to determine the exact location of your brush zone for maximum accuracy. Sometimes, carriers will give you discounts on your plan if your association agrees to remove some vegetation around the property. However, even if eliminating it doesn’t affect your premiums, it’s a good idea to remove a few feet of vegetation to prevent a wildfire from spreading. 

“Insurance carriers take into consideration many things to determine their brush zone dimensions. They look at the density of vegetation and forestry surrounding your association. Then they assess their losses before deciding what they should include in their zone. My previous client had a carrier that only wanted to cover one side of the highway in their zone because they deemed the other side was too far from the fire hydrants.”

-- Jamie George, Vice President of Insurance at FirstService Financial

Visit Nevada Fire Information to check brush zones and get important fire prevention information. 

4. What type of coverage should your association carry?

There are six insurance coverages every association should carry:

1. General Liability
  • This coverage will protect your association from any third-party liability claims on property or bodily damages of others. Commonly known as slip-and-fall coverage, general liability coverage pays if someone is injured or property is damaged in your community. 
2. Property Damage 
  • This coverage will protect your association’s property and physical assets.

3. Directors and Officers (D&O

  • This coverage will protect your board from exposure to monetary and non-monetary complaints and claims based on their decisions while in service to the association. Read our white paper 4 Things You May Not Know About Community Insurance to learn more about this coverage. 

4. Crime or Fidelity  

5. Umbrella 

  • This coverage goes above and beyond your general liability underlying coverage. Umbrella coverage will cover any additional costs after you’ve exhausted your general liability coverage in the event of an accident. If you have any amenities or assets that may result in liability (e.g., playground, swimming pool), it is highly recommended that you carry umbrella coverage.

6. Workers’ Compensation

  • This coverage can help your staff and protect your association in the event you are included in a lawsuit related to a vendor’s employee. Some workers’ compensation policies will recommend additional volunteer coverage for your board of directors and committee members. If something happens to someone while volunteering on the property (e.g., they slip and fall during a meeting or event), this coverage would help them with additional copays once they’ve maxed out their coverage. 

5. What is the right amount of coverage for your association?

The right amount of coverage varies with each association depending on your assets, location and other factors. Here is the breakdown of average or standard coverage amounts for each insurance type:

  • General liability coverage should be $1 million per occurrence and $2 million aggregate. 
  • Property damage coverage depends on what your association owns in buildings and physical assets. 
  • Directors and officers (D&O) coverage should be $1 million. 
  • Umbrella coverage begins at $1 million and can go up to $50 or $100 million depending on the type of community you have (e.g., a single-family home community will typically carry less than a high-rise association).
  • Workers’ compensation should be $1 million.

6. How do condos decide and navigate deductibles for major water damage (association insurance versus homeowners insurance)? 

This depends on your association’s Declaration of Covenants, Conditions and Restrictions (CC&Rs) and whom they determined to be responsible for the water deductible – either the association or the unit owner. As insurance rates spike, you’ll see underwriting tightening and carriers offering association renewals with higher water deductibles to reduce their losses. While there are programs to buy down high deductibles, the best way is to educate your homeowners about carrying loss assessments on their HO-6 (condo) insurance. Encourage your homeowners to discuss and share the association’s master coverage, deductibles and governing plans with their agents so that they can be prepared for any liabilities or responsibilities. 

7. What are some insights on liability for associations that have playgrounds?

It’s highly recommended that your association carry umbrella coverage on top of general liability if your association has a playground or recreation area. The umbrella coverage will cover any additional costs after you’ve exhausted your general liability coverage in the event of an accident. 

“A few years ago, a Nevada HOA (not managed by or affiliated with FirstService Residential or FirstService Financial) was held liable for a swing set injury that resulted in a $20 million lawsuit. The swing set had reportedly failed before, but the board chose not to maintain it or remove the structure. The board did not have the additional umbrella coverage with their general liability, so they were only protected for $1 million of the damage.” 

-- Jamie George, Vice President of Insurance at FirstService Financial


8. What types of incidents should you report to your insurance carrier?

While you’re responsible for filing most claims with your insurance carrier, there are a few situations where you may consider accepting the loss. 

For general liability, if you know someone got hurt on your property, you should notify your carrier immediately and get the incident report from the involved parties while the details are fresh. The case will be open for about two years if the injured party wants to file a lawsuit. If they choose not to, the case will be closed, and your association is still protected. 

For property-related incidents, you should compare your deductible with the total cost of damage. For example, if your building has a $25,000 deductible and the total damage cost is only $8,000, you’d want to avoid reporting it to your carrier and keep that incident off your loss run report. However, if you know the total damage cost goes beyond your deductible, then report it to your carrier right away.  

For D&O incident claims, be sure to notify your carrier in writing within 90 days. It’s best to have a conversation with your broker about which types of claims you need to report. 

9. What impact do ongoing HOA lawsuits have on insurance rates or insurability?

Ongoing lawsuits generally make carriers nervous, which could potentially affect your coverage. When insurance carriers review your rates or coverage, they look at your association’s 5-year loss report. Therefore, it’s essential to work with a knowledgeable broker in the HOA industry. Keep in mind that just because your association is in a lawsuit doesn’t always mean you’re guilty. 

10. Who should your board meet with to discuss insurance coverage? 

Your board should be talking to an experienced HOA broker about your association’s needs and which coverages are suitable for your unique community or high-rise. If your association is a single-family HOA or condominium, your board should present an in-depth reserve study to your broker. It’s best to have a good appraisal and to partner with an experienced broker to point you in the right direction for high-rise cbuildings.

Ultimately, your board’s responsibility is to inform your broker of any changes to your community or building that may need coverage (e.g., new playground or tot lot, pool, spa and lounge area). Even the most experienced broker will miss any new details about your community if your board or management company doesn’t notify them. Work with your management team to determine your association’s needs for improvement or protection.

What next?

How can you set your association up for success? Be prepared and communicate often and early with your agent or broker. Ensure your board knows when your renewal date is and start the conversation early (90 to 120 days before, to be exact!). Keep your insurance agent in the loop with any changes to your community or high-rise so that they can inform you right away if you have proper coverage or not. Remember, you cannot prevent a natural disaster or unforeseen lawsuit, but you can prepare for it. 

Disclaimer: This article is provided for information purposes only and does not constitute legal or insurance advice. Always consult a qualified insurance broker or carrier.
Wednesday June 02, 2021