The Double Edged Sword
Association master hazard insurance premiums are going up and in some cases rising at double digit percentages. Even worse, many insurance companies are dropping coverage for high risk associations.
Causes: Recent catastrophic weather events have devastated insurance company profits. The lackluster stock market has negatively effected many insurance company stock investments. Excessive claims filed.
Whatever the cause, it is apparent that insurance companies are raising their premiums and taking less risk.
What Can Be Done: There are a number of options that need to be considered. The first is raising the deductible to a higher amount. Most associations have a deductible of at least $2,500 with some going to $5,000 deductible or higher. Deductible amounts must be balanced against the financial comfort levels of an association and within any governing document insurance requirements.
The second option is a preventive maintenance campaign. Addressing issues can prevent problem from happening and, thus, from claims being filed. Present claims issues can be easily accessed by requesting Loss Runs from the insurance carrier. A Loss Run is a report maintained by insurance carriers detailing past claims and outstanding claims.
Another option is a pragmatic approach to filing claims. Boards and memberships must realize that master hazard insurance is not a maintenance program. Much thought and consideration must go into the filing of claims. For example, if an association has a $2,500 deductible and a $3,000 claim, the $500 claim payout may not offset a possible increase in premiums when renewal time comes around.
When an Association is Dropped: When an association’s master hazard insurance policy is canceled the options are not pleasant. Generally in our dealings with insurance companies we make all attempts to obtain quotes in the primary insurance market, where you find insurance carriers such as Nationwide Insurance and Montgomery Insurance. When an association is canceled it is then usually forced to go to the secondary market which means Lloyd’s of London or several other high risk carriers. These insurance carriers are often referred to as “Carriers of Last Resort.”
When an association is forced into the secondary market, at a minimum, the premiums usually increase by a factor of three. These secondary market insurance carriers generally set deductible amounts from $10,000 up to $25,000. As an added rider to their policy, these secondary carriers will sometimes exclude certain claims from coverage. If an association’s prior policy was canceled due to broken pipes, this is many times an item that will be excluded from coverage.