Having the fiduciary responsibility of selecting the condo insurance on behalf of your association is one of the most important decisions the board has to make. For the association, we know price is something that is important but ultimately there should be more that plays into the buying of your insurances and choosing who represents you. Let’s go over eight mistakes associations can make in their insurance selection process.
1- Having Gaps in Coverage
Most of the claims that are not paid it is due to the lack of non-existent coverage in place. Of course, that’s why it’s important to choose the right insurance agency to work with to make sure that there are no gaps in coverages by offering all the necessary solutions. Finding out you have a gap in your insurance plan at the time of a loss vs. knowing about certain coverages and exclusions and making a decision to purchase or not purchase coverage, are two different scenarios. Ultimately it is the board’s responsibility to review their policy and be sure they have done the best job they can on behalf of the association.
2- Not Having Complete Understanding of Exclusions
While it is a shared responsibility between the board and the insurance agent, ultimately the board has to answer to their association members at the time of a claim gone wrong. If you’ve chosen the right agent to work with, they will make time to go over the exclusions and answer questions you may have. For example, in Florida most of the policies written today if the roof has not been replaced within the last fifteen years, at the time of a claim it will be settled at ACV (Actual cash value) instead of RC (replacement cost) which includes depreciation, and the amount of the claim will be less than if the claim would have been settled at replacement cost. Having that knowledge before hand will help prepare your reserves accordingly, and it moves from being an unknown gap, to something you can prepare for before a loss.
3- Not Having the Correct TIV (Total Insurance Value)
It is the boards fiduciary responsibility to hire a highly reputable appraiser to conduct the proper evaluation of the property every three years. The scope of an appraisal is to determine the intent of the use, important characteristic of the property, conditions, the presence of problems and how to solve them; it will include market data and at the end the appraiser forms of an opinion of value which is the imperative information for the board to properly insure the property in question. This is well connected to next mistake the board members make by not understanding “Coinsurance” in a property policy.
4- Not Fully Understanding “Coinsurance”
It’s difficult even for some insurance agents to fully understand the causes and effects of “coinsurance”. Coinsurance is a clause in insurance contracts on property insurance such as a building. This clause ensures policyholders insure their property to an appropriate value and that the insurer gets a fair premium for the risk. If the property is under insured below the coinsurance amount at the time of a claim their will be a penalty applied to the claim settlement amount. This penalty being assessed to an association can be devastating to your reserves, and ultimately the board will be subject to some backlash from the other owners in the building.
5- Having Multiple Agents Remarketing the Account
As you know in South Florida the property market is very tough, and there aren’t many options when it comes to carriers. You don’t have to go to three or four different agents in order to look for the best price. We all have the same options thru our brokerage markets. That’s why it ties back to choosing the right insurance agent to partner with that can do the leg work for you. When an underwriter sees a submission with your information on it from different brokers, they tend to get irritated and your proposal goes to the bottom of the pile. It insinuates that you are a price shopper, there is no loyalty, and they may not work with you to apply credits. Remember that insurance is negotiable, and staying with the same insurance agency has its benefits.
6- Not Having a Disaster Relief Plan
Do not wait until a claim happens to develop a disaster relief plan, the time is NOW! The board must select a competent member to be in charge of documenting the meetings and to be a historian of the association as far as when repairs or past claims occurred. It’s wise to appoint a board member to be your historian, take pictures, keep a diary, and be the appropriate liaison with the insurance company. A disaster plan should include the following: a copy of the insurance policy, all important phone numbers for easy communication like a water restoration company, fellow board members, and do not forget a camera to record the damages.
7- Not Having the Reserves for Deductibles
Everyone enjoys lower maintenance fees but remember the phrase “Pay now or Pay later.” In dealing with many board members, I noticed that they take pride in keeping the maintenance fees as low as they can to keep the owners happy, until a large assessment fee must be issue to all tenants. The boards main fiduciary role is to keep the reserves in line to avoid unnecessary assessments.
Florida does not require an audit of all HOA’s. The type of financial reporting can be specified in the bylaws. But the state can require specific financial reporting depending on the total annual revenues of the HOA. The requirements are specifically detailed in the Florida Homeowners’ Association Act under Section 720.303(7).
- An HOA with annual revenues over $500,000.00 is required to have audited financial statements.
- An HOA with revenues of between $300,000 and $500,000 is required to have reviewed financial statements.
- HOAs with annual revenues of between $150,000 and $300,000 is required to have compiled financial statements.
- Associations with revenues less than $150,000 are required to prepare a report of cash receipts (revenues) and expenditures.
Imagine switching insurances because you find a better rate on the property saving you let’s say $5,000. But the agent didn’t properly explain to you that the deductibles went from calendar year to named storm. You might have a 5% windstorm deductible, but now it’s per named storm. If your building gets damaged by more than one named storm in a hurricane season, do you have enough in the reserves to cover the deductible more than once? This could be one of the earlier mistakes we mentioned where saving a few thousand dollars can really hurt you in the end.
8- Not Keeping Meeting Records for Attendance and Decisions
Minutes of all meetings of the members of an association and of the board of directors of an association must be maintained in written form or in another form that can be converted into written form within a reasonable time. A vote or abstention from voting on each matter voted upon for each director present at a board meeting must be recorded in the minutes. The association shall maintain each of the following items, when applicable, which constitute the official records of the association:
(a) Copies of any plans, specifications, permits, and warranties related to improvements constructed on the common areas or other property that the association is obligated to maintain, repair, or replace.
(b) A copy of the bylaws of the association and of each amendment to the bylaws.
(c) A copy of the articles of incorporation of the association and of each amendment thereto.
(e) A copy of the current rules of the homeowners’ association.
(f) The minutes of all meetings of the board of directors and of the members, which minutes must be retained for at least 7 years.
(g) A current roster of all members and their mailing addresses and parcel identifications. The association shall also maintain the electronic mailing addresses and the numbers designated by members for receiving notice sent by electronic transmission of those members consenting to receive notice by electronic transmission. The electronic mailing addresses and numbers provided by unit owners to receive notice by electronic transmission shall be removed from association records when consent to receive notice by electronic transmission is revoked. However, the association is not liable for an erroneous disclosure of the electronic mail address or the number for receiving electronic transmission of notices.
(h) All of the association’s insurance policies or a copy thereof, which policies must be retained for at least 7 years.
(i) A current copy of all contracts to which the association is a party, including, without limitation, any management agreement, lease, or other contract under which the association has any obligation or responsibility. Bids received by the association for work to be performed must also be considered official records and must be kept for a period of 1 year.
(j) The financial and accounting records of the association, kept according to good accounting practices. All financial and accounting records must be maintained for a period of at least 7 years. The financial and accounting records must include:
- Accurate, itemized, and detailed records of all receipts and expenditures.
- A current account and a periodic statement of the account for each member, designating the name and current address of each member who is obligated to pay assessments, the due date and amount of each assessment or other charge against the member, the date and amount of each payment on the account, and the balance due.
- All tax returns, financial statements, and financial reports of the association.
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How The Bunker Can Help
Being a board member is a big responsibility that can come with serious consequences if the board is not working together and working with the right partners. At The Bunker, having one of our agents specialize in writing condo associations along with being an active board member of his association, gives us the edge needed to really understand the process on both sides. Give us a call today to discuss what we can do for your association! Call 954-239-7346.