icon on Condominium associations nationwide are facing a growing challenge: skyrocketing insurance premiums and, in some cases, complete non-renewal of association policies. These developments place significant financial strain on associations and their members, threatening budgets, insurability, and even the marketability of units.
Two major factors that have led to this adverse surge in nationwide premiums are climate change and inflation. Increased frequency and severity of hurricanes, wildfires, and floods have led insurers to reassess risk, raise premiums, or exit high-risk markets altogether. Further, rising labor and material costs have inflated replacement values, directly impacting property insurance premiums.
These market forces are of course out of an association’s control. But the two localized factors that impact a specific insured association are claims history and risk profile. Associations with a history of claims or deferred maintenance are viewed as higher risk, often resulting in higher premiums or policy cancellations.
Like all insureds, associations can choose to reduce the premium by electing for a higher deductible. Thereby the association is “self-insuring” for smaller claims which of course leads to increased out-of-pocket costs when there is an instance of property damage. The Board must then ensure that its reserve fund is structured to absorb these costs without requiring special assessments.
It’s certainly easier said than done, but the association should further implement risk mitigation strategies to reduce its “risk profile”. Measures include timely upgrading of building systems and conducting regular maintenance and inspections.
If your association is facing strong headwinds in its effort to find adequate coverage at the time of renewal, it should consider engaging an insurance broker who specializes in community associations and holds a designation such as CIRMS (Community Insurance and Risk Management Specialist). A knowledgeable broker can shop to a greater pool of multiple carriers, evaluate underwriting requirements and more effectively engage in data gathering and negotiations.
The insurance landscape for condominium associations is more volatile than ever. Boards must be proactive, informed, and strategic in securing coverage and managing costs. Legal counsel can assist in reviewing governing documents and collaborating with insurance professionals to ensure compliance with lending and statutory requirements.