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Skyrocketing HOA insurance costs demand attention

Alisa D. Sutman CIC, CRM, SCA

A recent article in Community Manager Magazine, published by the Community Associations Institute, provided some much-needed insight and data into a phenomenon we in the association management industry have been witnessing first-hand: The incredible rise in insurance costs for our associations.

According to data gathered by USI Insurance Services in the second quarter of 2020 and released in the Commercial Property & Casualty Market Outlook report, even for properties with a favorable loss performance, rate increases are foreseen to range between 5–15% for properties with non-catastrophic exposure, and 20–40% with catastrophic exposure. Rate increases for general liability could be between 5–10%, and umbrella rates could spike by up to 50%.
The community association industry enjoyed exceptionally low rates and high limits of coverage for the past 10 years. For example, a building with 170 units used to be able to purchase a $25 million umbrella policy for$3,000 a year. This deal may be off the table as capacity shrinks and rates continue increasing. Associations will need to consider lower limits at much higher premiums.

Source: “A Shift in Insurance Buying Power,” Community Manager Magazine, September-October 2020

The article goes on to provide some insight as to why we’re experiencing such a profound change in the HOA insurance market: a combination of expensive natural disasters and the destabilizing force of COVID with respect to the investment market has led to a number of carriers leaving the market entirely. 

Reducing the exposure of our associations to potential liabilities has always been important, but in times like these it's doubly so. One claim against the association's policy could amplify the premium and deductible increases to the point where the expense of insurance may have to be borne via assessment increases.  Condominiums are especially vulnerable because financing agencies like Fannie Mae and the FHA set insurance requirements that lenders must abide by, regardless of cost.

It's not possible to eliminate exposure entirely: Storms will still blow, accidents will still happen, and a lawsuit can come out of nowhere. But a robust vendor compliance program is an avenue by which a management company can practically eliminate one type of exposure. Making sure every vendor who steps on property is properly insured — general liability, commercial auto and worker's compensation — grants your Boards the peace of mind that in the event of an accident suffered or caused by a vendor's employees, the association will not be held liable.

While it's relatively simple to establish a vendor compliance policy, enforcement and follow-through is resource-intensive and feature multiple failure points that can lead to inconsistent application and non-compliant vendor risk.  By bringing on a dedicated, third-party service like VIVE, you can rest assured that your vendor compliance program is being enforced. It doesn't hurt that your company will save thousands of dollars in the process.

A simple demo of the VIVE system will illustrate the effectiveness of our insurance risk mitigation features.  Additionally, our risk management team is available to answer any questions you may have regarding this complex insurance world in which we find ourselves.

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