Five Steps to Combat Increasing Premiums

By: Melissa S. Doolan, Esq. 

Every day, I field phone calls and emails from board directors and managers concerned about the ever-increasing price for insurance and wondering how associations will afford the cost. There are numerous reasons for higher premiums. Community associations can take steps now to prepare for them.

1. Review the current budget and communicate about rising costs.
   Examine the current budget to determine how the association spends its money. Finding savings will free up money to use for increased premiums. Associations need to make sure they communicate often with homeowners about increasing costs and inform them they will need to increase assessments to keep up.
2. Adopt preventive measures.
   Adopting policies that seek to prevent damage before it occurs can save countless insurance claims. Associations also may have the ability to assess the cost of the deductible back to an owner who files a claim with the association’s insurance.  The association must communicate with homeowners regarding their responsibility to pay the deductible so owners know what coverage to obtain.
3. Identify components to  maintain, repair, or replace.
   Pools, clubhouses, tennis courts, roofs, pipes, electrical wiring, parking areas, painting, exterior build ing maintenance, hearing and cooling systems, and landscaping systems arc among the list of components an association must maintain, repair, or replace.  Identifying where the association is required to spend large amounts of money will help with budgeting for future expenses and make sure they have sufficient funds to pay rising insurance premiums.
4. Commission a reserve study.
   Reserve studies arc often an underutilized but very important tool for saving for future maintenance and replacement. The list of components the association creates is important to the study. A reserve study is a review of the association’s finances, the components that an association must maintain, repair or replace, and the expected life of the components. The study will notify an association if it has enough funds to cover its responsibilities and the expected date of the repair or replacement of various components.
5. Create a budget that includes a line item for reserve funding and ongoing maintenance.
   An accurate budget is important to make sure associations have the money to take care of its responsibilities. It also will prevent more costly repairs down the line. Insurance companies arc looking to sec if associations arc properly maintaining the community. An association that has failing components will likely have difficulty finding insurance.If they do find coverage, the insurance premium will cost much more.

Community associations must take an active role in saving money and planning for future expenses. Insurance companies arc looking to see if an association is properly maintaining its components and preparing for the high cost of repair or replacement. By taking these five steps now, a community association will be on the path to preparing to pay increased premiums.