Changes to the Insurance Market and the Impact of Infrastructure on Insurability

While it started in communities with higher exposure to wildfire, the insurance crisis has become widespread – not only in California but throughout many other states as well. The result? A “hardened” market where carriers need to be extremely picky about what to insure in order to stay solvent and able to cover the claims they have promised to cover. This means that communities that have a potential for loss (ie., damage or injury that results in a financial cost) are less likely to be able to obtain affordable insurance…. Or sometimes any insurance at all. Attending to potential losses has become equivalent to protecting the community’s ability to be insured, and that means that avoiding or deferring maintenance has much higher stakes today than it did five or ten years ago.

One way to address the impact of the current insurance marketplace is to be sure to go out to bid for insurance early. You can begin shopping your insurance ninety days before your renewal date. If you wait to shop until you receive your renewal, you very well could only have a couple of weeks to try to get another option, and by then it is too late.

The same proactivity should apply when looking at the maintenance needed for your community.
 

As our communities are rapidly aging before our eyes, we need to collectively step up our maintenance and repair game in a BIG way. We can no longer sit back and watch the paint fade or roofs leak. 

Running a roof project may sound easy, but nothing is when you realize all the details and coordination that must take place before the project, during, and post. The importance of proper planning, budgeting, and executing will be the difference between a successful project and a nightmare project. 

As the board is considering updates to its infrastructure, it needs to keep in mind that even if the association isn’t responsible to replace or maintain the item according to their governing documents, they MAY be responsible to replace/maintain the item in order to get insurance for the community. The insurance carriers will be asking about updates on items like:
 

• Roofs and Siding – How old? What materials are they made from? Is there a coating?
   

• Electrical Panels and Wiring – How old? Have there been any updates since the build date?
   

• Plumbing – What type of pipes do you have? [Even those that are “unit owner responsibility.”
   

• HVAC Systems – How old? Have there been any updates since the build date? Are the vents cleaned regularly? On what schedule?

When reviewing the maintenance for a community, you’ll want to start with a global view. Pretend you’re flying over your community, and you can see every issue with paint, roofs, HVAC, electrical, lighting, etc. Looking at the community allows you to combine repair projects to save money. For example, if you’re completing balcony repairs and scaffolding is needed, consider painting your buildings if the end of their useful life is approaching. Scaffolding and mobilization for contractors are additional fees that can be saved when combining projects. 

The biggest hurdle in our industry is the lack of funds for the maintenance and repair projects. Construction costs are still up 30%+ relative to pre-2020. Many HOAs have failed to increase assessments over the years and therefore defer the work  due to lack of funds  This is where phasing projects, loans, and special assessments are all options for assistance to get the work completed. 

Now that you’ve obtained the funding needed for the project, let’s get started! Ensure your HOA legal counsel is reviewing the contract before signing on the dotted line. Interview construction management firms to learn more about their value and how they can be the advocate for the HOA during the project. One of the most important post-project needs is obtaining a warranty on the product and work completed. If you have a painting project and the contractor fails to prep properly, paint with the appropriate mil thickness, or thin out the paint, the HOA could be left with no warranty at the end of the project. Who will be verifying that the contract is being followed and that the appropriate products are being used as per the specification? Once the warranty is obtained, the HOA should add the continued maintenance to its annual calendar to ensure the warranty lives through the term given. 

Unlike ten years ago, underwriters do tons of research, using Google Earth, inspections, loss control reports - even pictures on Zillow and other real estate websites - to look for roofing concerns, parking lot deterioration, trip hazards, paint condition, balcony railing spacing and more. Gone are the days where you can simply tell the insurance company that you did the work. Now you need to have documented proof like signed contracts and payment receipts for the work done. So, keep that documentation! Make sure that each subsequent board has access to the information because they will need it for years to come.

And through all of this, let’s not lose track of the fact that any updates to infrastructure help to not only maintain the value of the community, but they help to keep the community SAFE. While we are struggling to find ways to save premium in an unhealthy insurance market, we should know that all the work that we do can help keep someone healthy, or even save a life… whether or not it gives us a discount on our insurance.

Felicia Baker, CMCA, AMS, is Client Relations Manager for AD Magellan and can be reached at Feliciab@admagellan.com.

Kimberly Lilley, CIRMS, CMCA, is Director of Advocacy, PR & Marketing at Berg Insurance Agency in partnership with LaBarre/Oksnee and can be reached at kimberly@berginsurance.com.