HOA Insurance - Expert Advice Needed

Started by RicaH • 4 replies • 1411 views

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RicaH (Florida)
Posts: 7

Posted:

I am the treasurer on our BOD and started looking at where the money goes. Interestingly, I found that more than 1/3 of our budget is for insurance. It seems awfully expensive, which is not that surprising when looking at how much insurance we have. I have no idea how the original policies were set up, or who was involved in the decision. Insurance is not referenced in our bylaws or CCRs, so we have no guidelines there. I would guess that we were advised by an insurance agent what we needed to carry. So, here is my question. What IS really important to carry? As with personal insurance, I know that it is possible to be over-insured. For instance, we have "Employee Theft" covered at $10,000. But, the total sum of our annual dues for the entire association is only $5,000. It also seems like there are unnecessary coverages. For instance, in our general liability policy, we have coverage for "Damage to Premises Rented to You" at $100,000." WHAT?? I guess what I am trying to find out is if there is a less expensive way to have us covered properly. Are there policies written specifically for HOAs, or do most insurers just adapt their typical "business organization" policies to the HOA? Does anyone recommend a good insurer that we could check with? We want to be sure we are appropriately covered, but at the same time, do not want to be paying for more insurance than we need. We are a small FL HOA with only 25 homes and $5,000 in total annual dues.

Thanks for your help.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Why not shop around a bit? There are not alot of insurance companies that will insure a HOA. I've heard maybe 20 nationwide if that...We used Traveller's for our policy. I am sure Florida and other posters may offer more suggestions. Most of the insurance policies offered do come in a kind of "packaged form" so some things you may not need but have to have in the policy to be offered that package. Example: We didn't own a HOA vehicle but the policy covered one. However, since we didn't have an exclusive vehicle it did cover the difference of what an individual's insurance paid out IF a board member was in an accident during HOA business.

There's many reasons why a HOA needs insurance. Our rules required us to have a $1 million minimum insurance coverage. We also required any contractors to have that amount as well. A $1 million insurance policy truly isn't that much as it sounds. So don't think it's actually a million dollar payout. It really just put a cap on things in the long run.

We made arrangements with our insurance company to make payments throughout the year. We paid $2500 a month for 10 months. Otherwise we couldn't afford the upfront payments they wanted. This may help if you can break down the payments to save costs.

Overall, keep your HOA insured. Look at the items and responsibilities of your HOA and use that to decide what's best for it. I know many people won't join their HOA board if there isn't any kind of protection available to protect their personal assets.

Former HOA President

TimB4 (Tennessee)
Posts: 21,047

Posted:

Rica,

I am certainly no expert in Insurance. As Melissa stated, it pays to shop around.

The policies you typically need to have is:

Directors and Officers Insurance - covers litigation of most issues.
Theft/Crime - acts as the fidelity bond for your Officers and employees.
Liability (ours is called multi-peril)- protects the Association

If your a condominium you may need additional coverages.

In VA, the amount of fidelity bond/theft insurance is established by Virgina Law. You should look and see if there is anything in FL statutes. If not, I would suggest using what VA requires:

"insurance policy shall provide coverage in an amount equal to the lesser of $1 million or the amount of the reserve balances of the association plus one-fourth of the aggregate annual assessment income of such association. The minimum coverage amount shall be $10,000."

So, an amount equal to your Reserve fund plus 1/4 of annual assessments. This would probably change yearly unless you calculate the probable highest amount of your Reserves and at least match that.

Hope this helps,

Tim

MarkM19 (Texas)
Posts: 1,457

Posted:

When I first was elected I went to our property manager and asked to see the poliices. I told them that I wanted to go out for 3 additional bids for similar coverage. At the time we were paying about 25K annually. When the existing carrier found out that it was going out for bid he dropped the rates by 9K on the spot. We excepted the price reduction and never got the bids. The next year I asked for the rates to bid sent out for additional bids and again we recieved a 5K lower price. That meant a 14K reduction because I asked for multiple bids.

I believe that the Property Managers make deals with to many of the contractors they do work with and could possibly get kick backs for keeping acccounts with existing vendors.

Over the last 3 years we have saved nearly 70K in annual contract costs by going out for bids. We have been so successfull that we now think we are near the bottom on our contrated cost.

What I suggested and was implemented last year and done again this year is to send a letter to all existing Vendors and ask them for pricing for our upcomming fiscal year and let them know that if a increase is in the works we will go out for 3 bids and will select the best Vendor available. They have all chose to keep rates the same.

Good luck with your Insurance. I am sure you can reduce costs if you ask for multiple bids. They won't give if you do not ask.

Mark

JeffR7 (California)
Posts: 251

Posted:

Mark, if I didn't know any better I would think you are talking about my HOA

We went through exactly the same process. Over the course of two years we dropped our insurance rate from about 15K/year to under 7K and we have a better coverage.

The first year our existing insurance company dropped the rate when they found out we are shopping around (though our management company). The second year they dropped it even more but we still switched for even more savings.

One thing insurance brokers love to do is to send you your renewal proposal 5-10 days before your policy expires to make sure you don't have enough time time to shop around and make a decision.

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