Insuring for the Future

Published in the ECHO Journal, July 2011

ECHO’s Annual Seminar and Trade Show is an event all vendors look forward to each year. Meeting new people and having the opportunity to catch up with long-time clients face to face is a much anticipated opportunity for many. One of the most exciting aspects of the Annual Seminar is the changing theme. While most insurance brokers pay close attention to their service, knowledge, competitive pricing, adequate insurance coverage and timely proposals, one thing we can’t always brag about as brokers is being the most artistically creative bunch of people. And although we do enjoy the theme each year, I’m afraid our lack of artistic ability doesn’t always allow us to garnish our booth at the trade show like some of our more talented contemporaries. This year’s theme of Exploring The Future, however, provided encouragement for me to address this subject and how it pertains to the world of insurance.

Insurance is specifically based on and around the notion of the future. And although the future cannot necessarily be precisely assumed, we must protect our investments against the most predictable losses. This means looking to experts in the industry, such as insurance brokers, attorneys, reserve analysts, etc. These professionals can collaboratively determine what types of losses your particular investment faces and how you can protect yourself in the future.

Insuring your association accurately should be based on a few key elements, including meeting both Davis-Stirling requirements and CC&R guidelines and considering your particular property characteristics, how the association functions, and who and what needs to be protected. Some common and frequently addressed insurance coverage that communities tend to insure for and in some cases must insure for are Property Coverage for hazards such as fire and windstorm, General Liability, Directors and Officers Liability, and Crime. But what about the remaining circumstances we all know are possible, happen to be optional and may cost a relative amount of money to insure? How do we know what coverage to pursue, how much to purchase and where to go when it comes to obtaining facts and information? Your insurance broker can and should be able to offer a capital of knowledge when it comes to coverage for these potential losses. Like other experts in this field, insurance brokers must continue their education and comprehension of insurance products, policies and industry predictions on an ongoing basis. An insurance agency whose niche lies in common interest developments will be able to offer your community assistance with many optional types of coverage.

A very prevalent concern in our particular area is the dreaded earthquake. No one knows when it’s coming, but we are told it inevitably will come and perhaps soon. Planning for this type of loss might mean preparing for hefty loss assessments, including holding some monetary cushion in your association’s budget, conducting earthquake retrofits to the property or insuring your association against this loss altogether. Especially in today’s economy and considering the sometimes and all too customary lack of regular and total assessments, it is difficult for most communities to pull together enough funds to recover from this type of loss. And although the cost of an earthquake insurance policy may seem relatively exorbitant, the out of pocket expense to repair and rebuild after loss from an earthquake may likely cost more. Sadly, if an association isn’t insured, it is likely the only unit owners able to remain and rebuild will be those with adequate equity invested in their property. Given the current time, this could be a fairly small percentage of your community. If an association is contemplating the purchase of an insurance policy covering an earthquake loss or if community members have pushed the issue and want the idea explored further, there are a few steps the association can take.

  1. Contact a broker who specializes in common interest communities and request competitive insurance options for this type of coverage.
  2. Once data have been collected, offer facts to the community, such as what coverage your association has available, how much it will cost, what the cost might mean for assessments, how deductibles work, etc.
  3. Determine if this coverage and cost warrants a membership vote.

Only you and your community can decide if earthquake coverage is something you wish to insure for the unpredictable future. It’s important to ask your membership, “Are you willing to risk the investment made in your community if an earthquake loss occurs?”

Another insurance policy available and typically optional for common interest communities is Employers Liability or Workers’ Compensation Coverage. A community that lacks employees and wages and has nothing in a payroll may question the necessity for this type of policy. However we can certainly look to past examples in order to insure your community’s potential future. What the past tells us is there will always be a grey area where this coverage could prevent hefty out of pocket expense to a community if a loss occurs.

In San Jose, a contractor’s employee working on a gazebo fell off and broke his arm. The general contractor’s worker’s compensation policy had lapsed, and the association was deemed to be the employer. Although no lawsuit transpired, the association had to come up with money to pay costs. How could this out-of-pocket expense have been avoided? Since the court deemed the association the employer, had they a workers compensation policy in place, coverage would have been offered to “their employee” without even a deductible or insured retention.

Although professionals in the common interest community field will certainly back me up and recommend that any community hire only properly licensed and insured contractors, unfortunately there is never a 100 percent guarantee this practice won’t fail you. Insurance coverage can lapse and fail and purchasing an employer’s liability policy for your common interest community will offer a backup plan in these unforeseen circumstances and avoid an out of pocket expense for members.

Insuring for the future is probably the most cost-effective way a community can protect themselves at the time of a major loss. I encourage your community to ponder and discuss possible losses and how you can best prepare for them. Make a list of questions that come up and contact the most qualified professionals to assist in answering your questions and helping you make an informed decision.

Charlotte Allen is a licensed insurance agent/broker with Socher Insurance Agency. She is dedicated to helping common interest developments find value in their insurance. Socher is a long-time member of ECHO.