Recent calamities and wildfires have caused a property and HOA insurance crisis in California. More insurers have pulled out of the state, while premiums have risen, leaving more communities without coverage. What can your HOA do?
What is the California HOA Insurance Crisis for HOAs?
Severe weather conditions, wildfires, and other natural disasters have adversely affected communities across the state. One aspect of this that many might be surprised to learn about is insurance coverage.
Many insurance companies in California have begun declining to provide insurance and renew coverage for property owners and HOA communities. Most insurers have already incurred significant losses from these incidents, prompting them to limit or discontinue services.
On top of this, local legislation and regulators have limited how property insurers can set prices. They are required to set rates based on historical losses rather than estimates of future losses, leaving them unprepared for unpredictable calamities.
The Role of Property Insurance in HOAs
Also known as an HOA master policy, HOA insurance serves as a safety net for the association. It provides coverage and protection for the HOA and homeowners against property damage and liability risks.
Usually, HOA governing documents would indicate the need for insurance. Additionally, many states require a minimum amount of insurance coverage for HOAs, but this amount varies by location.
What Does the HOA Master Policy Cover?
Typically, HOA insurance provides two types of coverage: property damage and liability. However, the current insurance crisis in California has greatly affected property insurance.
But what is it?
Property insurance for HOAs provides coverage for any losses caused by physical damage to structures found in an HOA, including buildings and common areas. These may include damage from wildfires, flooding, and other disasters that affect buildings.
Coverage for property damage may vary depending on your HOA policy. Some will provide comprehensive protection, while others may only pay for basic repairs.
The California FAIR Plan
For those affected by the ongoing property insurance crisis in the state, one program they can turn to is the California FAIR Plan.
Simply put, the FAIR Plan is a program in which all California-licensed insurers “pool” funds to provide “high-risk” homeowners with access to basic fire insurance. It’s done to limit any single insurer’s liability on the matter.
The said program isn’t run by a state or public agency, but by the California FAIR Plan Association. The funds, therefore, don’t come from taxpayer money but from the sales of insurance policies pooled by insurers.
If our HOA does not have any other option and is qualified, consider obtaining the plan as a last resort and a temporary solution. After getting coverage, work towards finding and getting a more comprehensive plan for the HOA.
What Should HOA Boards Do?
Hearing the word “crisis” would understandably ring alarm bells for many homeowners’ associations. What can HOA board members do to try to curb the HOA insurance crisis’s impact on your community?
Here are some steps to consider:
Review Your Current HOA Insurance Policy
If your HOA already has an insurance policy in place, it’s time to review it. For this, you need to check your current plan’s coverage levels, terms, deductibles, and other considerations. You should also check whether it complies with all government-imposed requirements.
When doing so, it’s best to consult and work with your current insurance broker. Try to see if the coverage is adequate for your HOA community. Otherwise, your HOA might be forced to do a special assessment in case your insurance couldn’t cover all the emergency costs.
Ensure Your Coverage Doesn’t Lapse
Long before the end of your coverage, you need to work on renewing your insurance policies. Especially in cases where the CC&Rs require your HOA to have coverage, you need to make sure there’s no gap in between policies.
Sometimes, HOAs may need to levy special assessments to ensure this. However, that would be more viable than going without insurance for a set period. After all, accidents and emergencies can happen when you least expect them. Having no protection when that happens might be more costly.
Consider Risk Mitigation
Insurers tend to refuse to cover properties and communities that are considered high risk. Usually, their reason stems from potential losses that could exceed their capacity.
Because of this and the ongoing crisis, your HOA should consider risk mitigation. Under this are steps involving general maintenance procedures to protect your community from risks. Some examples include fireproofing for buildings, fire-resistant landscaping, and structural upgrades.
In tandem with this, the HOA should also conduct risk assessments to identify hazards and promptly address them.
These can help insurers view your HOA community as more “insurable.” Given the HOA insurance crisis, this could help your HOA find coverage or renew your current policy more easily.
Do Preventive Maintenance
Another way to make your HOA appear more insurable to insurers is to have sound structures. You need to ensure your common areas and buildings are less likely to suffer extensive damage.
Consider Increasing HOA Dues
Sometimes, your HOA has no other choice but to pay higher premiums than what you already have in place. Given the high-risk landscape in California, insurance price increases may become inevitable.
To afford higher premiums, the HOA should consider increasing HOA dues. Board members should also inform residents about it in advance and explain the situation. Also, make sure the increase is reasonable and sound, making it more likely that HOA members will accept it.
Levy Special Assessment
If a steep increase in insurance premiums happens and is needed immediately, HOAs may need to resort to a special assessment. This may be more applicable to high-risk places prone to sudden, large disasters.
Encourage Separate Homeowner Coverage
HOAs should also work with homeowners on coverage. You should encourage your homeowners to review their separate, personal property coverage to ensure that they are fully protected. Coax them to work with their insurance brokers to ensure that there are no coverage gaps between their personal coverage and the HOA insurance protection provided by the association.
Ensuring Protection
Insurance is a necessary expense that benefits the community in the long run. With the current HOA insurance crisis in California, HOA communities and property owners are at greater risk of financial ruin in major emergencies.
Optimum provides expert management services, including HOA insurance management, to community associations in Southern California. Call us today at (714) 508-907 or contact us online to learn more!
