Habitational Insurance Soaring | Agilius.com

The cost of habitational insurance is soaring. Here’s how HOAs can fight back

By Donna Freedman

The cost of habitational insurance has soared in recent years. This is mainly due to extreme weather conditions resulting in multi-billion-dollar losses. Such high costs have led some insurance companies to cease writing policies in certain areas of the country.

Yet even properties that don’t face major risks have felt the impact. According to an October 2019 article from Insurance Journal, “rising catastrophe losses and dwindling profits” have led to across-the-board rate hikes. At minimum, commercial property owners are looking at premium increases of 5% to 10% – and in some places, habitational insurance rates have risen 50% or more.

Obviously an HOA board can’t prevent natural disasters. However, it may be possible to reduce rate hikes in your community’s habitational insurance policy. Here’s what your board needs to know.

Cause and effect

According to the Insurance Information Institute, catastrophe-related losses have actually decreased in the past few years:

  • 2017 property losses: $106.5 billion
  • 2018 losses: $50 billion
  • 2019 losses: $24.4 billion.

Yet insurers know that tornadoes, earthquakes, wildfires, floods, hurricanes and other disasters will continue to occur, and that costs can always spike higher. According to Insurance Journal, providers are looking carefully at each account to “make sure they’re making smart decisions and actuarially sound rates and coverage.” This has transformed the habitational insurance marketplace.

For example, some companies don’t want to renew coverage in certain areas that are “too close to brush” or “too close to water.” Thus when an HOA does find a company willing to sell habitational insurance, it will cost more (often a lot more) due to the increased risk.

“The results for many of the carriers have continued to erode, so the costs just have to continue to go up,” says Barry Whitton, managing director of Burns & Wilcox Brokerage in Atlanta.

Although earthquakes, tornadoes, wildfires and hurricanes grab headlines, they aren’t the only issues that affect habitational insurance rates:

Non-hurricane windstorms (also known as “convective windstorms”). The Midwest has been particularly hard-hit. “An insurance company does not want to (replace) roofs on these buildings every five, six, seven years,” Whitton says.

Floods.This is the most common and most costly insurance risk. Nine out of 10 natural disasters in the U.S. involve flooding. More people are killed by flooding each year than by hurricanes, tornados and lightning combined.

Aging buildings. Insurance Journal notes that older properties are considered “undesirable” to habitational insurance issuers. Older roofs and mechanical systems are more likely to develop problems, and fixing them could mean costly building code upgrades.

Improving your odds

How to help reduce the risk of giant rate increases? With a mix of tactics.

Opt for a higher deductible. For example, you could reduce the premium at least 5% by changing from a $1,000 to a $5,000 deductible, Whitton says. Opting for a much higher deductible ($25,000 to $50,000) could result in a rate decrease of 15% or more. Obviously you’d need to talk to the agent about whether the savings would be worth it.

Don’t file smaller claims. Any time you file a property claim it could increase your premium for up to five years. It might actually be cheaper just to pay for that $1,000 loss event than to face higher premium costs.

Stay on top of maintenance. Cracked sidewalks could cause trip-and-fall claims. Old plumbing may lead to water damage. Neglected roofs are at risk for cracked seams, debris buildup and other issues that shorten their lifespans. And so on.

Don’t cheap out. A lower rate quote might be for a policy that doesn’t address all issues. For example, it might pay to replace a building destroyed in an earthquake or flood – but not cover demolition costs and debris cleanup. Make sure the coverage at least meets the minimum requirements set out in the HOA’s covenants, conditions and restrictions.

Don’t take risks. A few years without wildfires or spring storms could tempt an HOA to reduce coverage in those categories. But any savings could be wiped out (and then some) by later damage.

Be proactive. Ask if the insurer offers “loss control engineering,” i.e., experts who evaluate potential hazards in shared buildings and common areas. The report will point out any issues that could cause higher insurance rates, such as aging roofs vulnerable to windstorms or a lack of defensible space in regions at risk for wildfire.

An insurer might also offer “catastrophe modeling,” a system of evaluating what happens to a property in a disaster. This can help the HOA board “understand the limits they need to buy,” Whitton says.

An HOA board needs to evaluate all expenses in order to keep costs low. But there’s also a “penny-wise, pound-foolish” aspect to buying insurance. Cutting corners on a habitational insurance policy could later leave the HOA on the hook for expensive problems later on.