Unfortunately, we continue to see major increases to insurance premiums in Colorado, and for some communities, insurance has become practically unaffordable. In fact, it is no longer unusual to see annual premiums ranging between $600,000 and $800,000 for some associations, with no sign of relief in the near future.
So, what are associations to do when they receive quotes containing such outrageous premiums? Below are a few options to consider in an effort to lower your premiums:
Increase the Deductible Amount
The first thing most associations look at when trying to lower premiums, is increasing their deductibles. Long are gone the days of the $5,000 deductible, and it is no longer uncommon to see deductibles as high as $100,000 per occurrence on property claims.
Before going this route, however, make sure your association’s governing documents do not contain a maximum deductible limit for the association’s policies. If such maximum limit exists, a declaration amendment may need to be presented to your owners and approved, before the association can increase the deductible amount.
Also, if your community is forced to increase its deductible, make sure your owners are aware of “loss assessment” coverage on their end. The association’s insurance representative should be able to put some materials together to distribute to owners that explain this type of coverage and how it can protect them.
Make Sure your Association is not Over-Insuring
Sometimes, associations unknowingly insure more than what their governing documents require. Oftentimes, assumptions are made as to what associations are required to insure, and these assumptions are not verified. However, upon a legal review of the requirements in the governing documents, it is discovered the association is insuring portions of the community it is not required to insure.
To ensure your association is not over-insuring, consult with the association’s attorneys and obtain a detailed list of the association’s insurance obligations. One of the best mechanisms for obtaining the above-references list, is by having the association’s attorney prepare a maintenance and insurance chart.
Once you have such a chart, it should be turned over to the association’s insurance representative to confirm the association is only insuring the components required by its governing documents. Additionally, the chart may be provided to owners in the community for a quick reference as to their own maintenance and insurance obligations.
Amend Declaration to Shift Insurance Obligations to Owners
If your association is insuring in accordance with its governing documents, it may be feasible to propose a declaration amendment to the membership to shift some of the insurance obligations from the association to the owners. Doing so, would lower the association’s premium and hopefully make insurance more affordable.
One thing to keep in mind, however, is Colorado condominium communities created after July1, 1992, are subject to the Colorado Common Interest Ownership Act (“CCIOA”), which requires the association to insure condominium units (except for finished surfaces and owner installed improvements). Therefore, it may not be possible to shift too much of the insurance obligations to the owners when it comes to post-CCIOA condominium associations.
Work with an Insurance Broker specializing in HOA Coverage
On a final note, make sure your association is working with an insurance representative specializing in HOA coverage. This specialty is different than brokers specializing in individual homeowner coverage, so don’t get these two types of brokers confused. Using an HOA specialist, can make a huge difference with respect to the quality and cost of your community’s insurance. If you are not sure whether you are working with an HOA specialist, check with the association’s legal counsel.
In the meantime, please do not hesitate to contact one of our attorneys, at 303.432.9999 or at [email protected] if you have additional questions concerning insurance obligations or lowering premiums.