As insurance companies are continually making changes to their coverages to stay current, it’s important for association board members and property managers to be aware of what those changes are and how they can impact their communities.
According to Joel Meskin, Esq. , CCAL, of McGowan Program Administrators, the newest thing to impact the insurance industry has to do with latent infrastructure issues. He said that although the issues themselves aren’t new, what is new is that such issues were not seriously thought about until now, especially in light of the recent collapse of the Champlain Towers South building in Florida.
Some of the problems develop over time while others stem from construction defect issues that were present from the start, said Meskin. For example, salt water can cause the deterioration of rebar in cement after a number of years. “Here we’re dealing with things that take 30, 40, 50 years to happen,” he noted.
Meskin said it’s important for community associations to be proactive. “It costs money to be proactive, but you have to do that,” he said. “I think you need good community association management companies or general managers who really understand that.”
Meskin noted that managers should keep their eyes open and know when to hire a professional to come out to the property to take a look at a potential problem. He added that the saying “see something, say something” applies to community associations too.
While infrastructure issues can affect any type of community association, high-rise buildings in coastal areas specifically are being impacted by insurance changes following the Champlain Towers South disaster, said Meskin. “A lot of carriers have just pulled out of, or are considering pulling out of anything dealing with coastal high-rises,” he noted.
This is mostly because the carriers are not sure what the status is following that tragedy, Meskin explained. Investigations are on-going and there are reports and articles summarizing some of the investigations such as the January Miami Dade Grand Jury report and the January Miami Herald article.
“For them to be able to make a profit and stay in the industry, they’re going to have to do a number of possible things,” he noted, the first of which he added will be to increase premiums.
Meskin again reiterated the importance of being proactive, especially with regard to infrastructure inspections and taking remedial measures. “If they don’t do it, the carriers are going to require it,” he said.
Otherwise, Meskin said that the underwriters aren’t going to write the risk. And what would convince the insurance carriers to take on the risk? Meskin believes that actually performing and funding reserve studies is the answer.
He added that he doesn’t think legislation will motivate high-rise communities to perform and fund reserve studies. Instead, he believes reserve studies should be made a requirement in order for insurance companies to sell insurance in the state. Meskin said this will help the insurance professionals, the management companies and although there’s an expense, it will also help the community associations.
According to Meskin, the new “four-letter word” in Community Association insurance is “deferred maintenance.”
“The attitude of many boards and unit owners is we’re going to kick it down the road; we’re not going to do it this year, we’re going to do it next year. I think that’s what carriers are scared of,” he said.
They want to see that the associations have been doing something with their reserve studies rather than putting everything off to a later date, said Meskin.
He noted that reserve specialists are generally engineers who are going to notice issues that others do not see, such as cracks, falling cement, etc. “These are things that get harder to fix down the road,” said Meskin. “That’s a big issue we find with the associations.”
What else is affecting community association insurance in 2022? According to Meskin, he believes there are going to be further restrictions regarding pools, because more and more people are getting hurt in pools. He noted that pools are one of the biggest loss origins for associations, and that as a result, umbrella carriers are going to stop providing excess limits, at least the limits they have been providing over the past two decades.
In addition, more people are suing for drowning now than ever before, but not just related to pools. Meskin said that drowning occurrences have also been taking place in retention ponds which is causing changes to insurance policies as well.
Aside from pools, Meskin also believes balconies present a problem that will affect the cost of insurance policies. “I think balconies are a huge general liability issue,” he said.
He noted that more and more, older adults have been experiencing slips and falls on common areas resulting in broken hips and other injuries.
In addition, driving insurance is also increasing. Meskin attributes this to the fact that the judgments are much higher overall, but especially when children are involved in an accident.
He explained that in Directors and Officers Liability Insurance (D&O), defense fees and costs have a huge impact on policy increases. “It’s all about defense fees and costs,” Meskin said. “The only time we end up paying indemnity is when it’s a cost of doing business decision and we decide that we should settle this as opposed to incurring additional defense fees and costs.”
Another area that is constantly changing and affecting community associations is cyber insurance, noted Meskin.
“Cyber liability and claims are happening in new ways faster and more furious every week. We can’t keep up with it — the insurance companies can’t keep up with it,” he said. “I’m not sure whether in another couple years insurance companies will continue to write it or it will be so outrageously expensive that nobody will be able to afford it.”
According to Meskin, one size does not fit all when it comes to a cyber insurance policy.
“A community association, in my opinion, very often doesn’t need a million-dollar policy for ransomware,” he said. “Hackers are only going to take what you have. They’re not going to demand you go steal from your bank or put a lien on association or unit owners.”
Meskin also pointed out that a data breach doesn’t necessarily have to be digital as it can also happen when paper documents are compromised. With respect to any financial documents or any information on current or previous unit owners that must be maintained for a certain period of time, he suggests keeping a note of the end date. “So, when that date hits, you can pull them out and shred them,” noted Meskin. “So, if anybody ever sues you, you can’t provide what you don’t have.”
When it comes to choosing the right insurance, Meskin said that associations should avoid using a bidding process.
“Shopping insurance should be shopping for the insurance professional. They’re the ones who know the industry; they know the markets that are available,” he noted.
By involving multiple insurance agents through a bidding process though, Meskin said they will try to outbid each other and the product that is being sold might not be what is best for the association.
“Upfront price is not the determining factor of the value of your insurance,” he said. “The only way you can determine the value of your insurance is at the time of a loss.”
Meskin explained that at the time of a loss is when the coverage and the limits come into play. “Carriers don’t give anything away for free. You get what you pay for,” he noted.
When it comes time for a community association to purchase insurance, Meskin described his idea of the perfect scenario. “I would require the insurance professional to come in, go through the application with all the board members present, and I’d have a place for each one of the board members to sign off on the application,” he said. He states, “I can dream can’t I.”