A loss run report may be one of the least known components of an HOA’s insurance policy. However, this report can be the costliest of almost all other factors affecting the expenses of an HOA. Being that a loss run report can cost your HOA many thousands, if not hundreds of thousands, of dollars if not guarded properly.
In the context of a homeowner association insurance policy, a loss run report is a history of claims made against the policy. The loss run report will include information such as the date of the claim, a description of the incident and the amount paid, if any.
A loss run will typically record a five-year claims history. This claims history is one of the primary factors taken into account when the insurance company’s underwriter looks to renew or cancel an association’s insurance policy. This report can be both good and less than good when an insurance policy is up for renewal.
The best analogy of a loss run report is a personal credit report. Everyone is aware of the consequences of having a bad credit report. The same is true of an insurance renewal with a poor loss run report.
Changing insurance carriers will not negate a poor loss run from another insurance carrier. Just as with a personal credit report, a loss run follows the association. Before an insurance carrier will write a new policy, the underwriter will want to see the prior five years of claims.
Unfortunately, commercial insurance, which is what a homeowner association has, is not easily writable when there is a poor claims history. The primary market insurance carriers, such as Nationwide or Travelers, will generally not write high-risk policies. An association with a poor loss run would be classified as high risk and especially if cancelled by a primary market insurance carrier previously.
If a primary insurance market carrier cancels an association’s policy, the secondary market would generally be the only option. The secondary market, or the high-risk market, is not for the faint of heart. Homeowner associations entering this secondary market can expect premiums to multiply by four to five times or even higher. What makes matters even worse, these policies many times will exclude coverage for the issue or issues that resulted in the association being canceled in the first place. It is not uncommon for a secondary market policy to cost five times what the primary market policy cost and basically only provide fire coverage with a $100,000 deductible.
This is why it is imperative to guard the association’s loss run and practice risk management in order to prevent potential claims. Associations can potentially avoid claim submissions by establishing higher deductibles, if possible, as well as instituting maintenance plans to replace problem issues. The association’s insurance agent and attorney should be consulted to see what can be done to guard the loss run.
These actions could possibly save the association many thousands of dollars in the long run, by maintaining good insurance rates and producing loss run reports that are viewed positively by the underwriters during the renewal and application process. WDMC
William Douglas Management, providing excellent management services to HOAs and condominium associations since 1980.
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