Natural disasters can have a significant impact on community associations. One of the biggest issues associations face after a natural disaster is knowing when and how to file insurance claims. In this article, we will discuss how storms affect community associations and the role of different types of insurance coverage regarding filing claims, charging deductible, having the right policy in place, wind and hail insurance, flood insurance, etc. We will also discuss endorsements and inclusions of property, co-insurance and excess market policies. So if you’re a board member wondering what to do after a disaster, keep reading!
Policy Inclusions Explained
Like any other organization, a community association must have the right insurance policy to protect its assets. This includes insurance to cover the cost of repairing or rebuilding community buildings and common areas in the event of damage. It is important to note that there are two coverage options here: replacement cost and actual cash value. Replacement costs cover the repair or reproduction of the property, while the actual cash value takes depreciation into account. As a result, replacement cost policies are generally more expensive than actual cash value policies.
When it comes to community association insurance, one of the most important factors is understanding replacement costs. This is the estimated cost to repair or replace the damaged goods with new materials of the same nature and quality, without deduction for depreciation. Board members are responsible for signing a statement of value certifying that replacement costs are correct and for determining the correct value of community assets. If the assets are significant, it is a good idea to have a professional insurance study carried out so that the basis for the valuation can be determined with the help of a third-party expert.
Replacement costs can be determined by obtaining an insurance appraisal from an insurance appraiser. Insurance agents can also provide customers with a replacement cost estimator. It is essential to have an accurate estimate of the replacement cost to ensure that the community is properly insured.
Another consideration is coinsurance, the percentage of the total property value covered by the policy. According to a NAIOP example, say a company owns a building valued at $1 million and the coinsurance clause has a 90% agreement. This means that the property must be insured for at least 90% – or $900,000 – of the replacement cost. In other words, board members need to understand the associations’ insurance needs to adequately protect the association.
The excess market
The franchise market is the last resort for community associations abandoned by traditional insurers. In the surplus market, policies are much more expensive and have higher deductibles. For this reason, most community associations try to avoid the surplus market if possible. The main reasons that community associations may have to resort to the surplus market are due to too many claims or poor maintenance.
For example, a policy with a premium of $1,000 in the traditional market may cost $2,500 in the excess market. Also, excess market deductibles are usually much higher. For example, a policy with a deductible of $500 in the traditional market may have a deductible of $5,000 in the excess market. That’s why it’s so important to make sure your community is well-maintained to avoid making excessive claims. If you can do this, you can stay in the traditional insurance market and save money on premiums and deductibles.
Wind, hail and flood insurance
Property insurance policies generally cover wind damage, but some important exceptions should be considered. First, most policies exclude coverage for wind-driven rain, defined as rain that enters the home without causing exterior damage. In order to be covered, the policyholder must take out a separate wind-driven rain insurance policy.
Second, many policies have a separate deductible for wind and hail damage, which means the policyholder will have to pay a certain amount out of pocket before the insurance company provides cover.
Finally, flood insurance is not usually included in home insurance policies, so it’s important to take out a separate policy if you live in a flood-prone area. While these caveats may seem like overkill, it’s important to remember that wind damage can be very costly, so it’s worth being prepared.
Work with insurance agents and adjusters
When filing an insurance claim, the insurance agent is the first person you will talk to. They will help you gather the details and documents needed to start the claims process. The adjuster is the next person you will talk to, and they will review your claim and the basis to determine how much money you should receive. The expert will also provide an estimate of the damage. If you agree with the adjuster’s estimate, you will sign a release and the insurance company will send you the funds. If you disagree with the estimate, you have the option of hiring a public insurance adjuster to assess the damage.
The public adjuster will charge a fee for their services, usually a percentage of the total claim amount. The public insurance adjuster will examine the damage and provide an estimate. You can then decide to approve the estimate of the public insurance adjuster or to negotiate with the insurer for a higher amount. There are pros and cons to hiring a public insurance adjuster. Benefits include getting a second opinion on the damage and having someone at your side who is familiar with the claims process. The downsides include paying fees and not knowing if the public insurance adjuster’s estimate is accurate. Ultimately, it’s up to you to decide what works best for your community.
Insurable Events vs. Maintenance Failures
An insurable event is a sudden, accidental and unforeseen event that causes property damage. Examples of insurable events include fire, severe weather and vandalism. In contrast, a lack of maintenance is any situation in which property damage is caused by lack of maintenance, normal wear and tear, or gross negligence. For example, a roof that leaks because it has not been properly maintained would be considered a maintenance defect.
The insurance will cover damage caused by an insurable event, but not damage caused by a lack of maintenance. This is because insurance protects against sudden and accidental events, not against gradual deterioration. However, even in cases where an insurance claim is filed for an insurable event, it is not always clear who is at fault. For example, if a tree fell on a building during a storm, it may be difficult to determine whether the damage was related to the storm or because the tree was dead and not removed. In these cases, claims are usually settled on a case-by-case basis.
It is essential to note that filing an insurance claim does not always increase premiums. This is because insurers understand that accidents happen and sometimes claims are unavoidable. Nonetheless, it is still important to file claims as needed, regardless of the possibility of increased premiums.
As a board member, you are ultimately responsible for the welfare of the community and must take every precaution to protect it, including understanding the association’s insurance policies. Work with your insurance agent to find the best policies for your community and make sure you know how to file a claim in an emergency. By being proactive and knowledgeable about the association’s insurance policies, board members can ensure that everything has been done to protect the community.
If you have questions about current coverage in your community, please contact your insurance agent. And, of course, if you need help navigating this process, your CAMS Community Manager is there to help.
Is your community getting the trusted advice it deserves? Contact CAMS at 888.798.2624 or visit our website to learn more about the amazing services we provide.
Mike Stonestreet, CMCA, PCAM, AMS, is founder/co-owner of CAMS (Community Association Management Services). CAMS began in 1991 with Stonestreet and a few employees in a small office in Wilmington, but has since grown to over 300 employees serving eight regions across North and South Carolina.
His current role at CAMS focuses on mergers and acquisitions, culture alignment and high-level business relationships. Stonestreet is an active member of the NC Chapter of the Community Associations Institute (CAI) and served on their Board of Directors, serving as Chapter President in 2019.