Management Institute, Inc. (IRMI) defines Risk Transfer as a “risk management technique whereby risk of loss is transferred to another party through a contract (such as a hold harmless clause) or a professional risk bearer (such as an insurance company)”. This means if there is a fire in your building you want your insurance company to give you dollars to repair or replace what was damaged. If someone slips and falls and is injured, you want your insurance company fund to pay their medical bills.

Another way to reduce risk is to buy insurance to protect ourselves and others that we come into contact with. Buying insurance can be a daunting task especially since your insurance program is often the most expensive line item in your budget. Make sure you form an alliance with a capable expert. Your insurance agent should be someone who has experience in working with community associations. The CAI (Community Association Institute) and ACTHA (Association of Condominium, Townhome and Homeowners Associations) membership directories can give you a good place to start when you are looking for an insurance agent or an insurance consultant with whom to work. Remember, there is nothing wrong with interviewing an insurance agent before you allow them to handle your association’s insurance program. Would you hire a property manager, a landscaper or attorney without interviewing them first?

You also want to make sure that the insurance companies that insure your property are strong and solvent. You want to make sure that they have enough money in their coffers to pay for any claims that might arise. Go to www.ambest.com to check out ratings for insurance companies. A.M. Best is the “go-to” company for credit ratings and financial data for the insurance industry. Knowing that your insurance company is strong and your insurance agent is experienced and reputable can give you great confidence in your alliance.

Another safeguard against risk is to hire an insurance consultant to act as a second pair of eyes to review your insurance program. No insurance agent should be afraid to cooperate with an insurance consultant that you hire to review your insurance program. If they are, then that might be your first red flag that you have selected the wrong insurance agent!

When reviewing your insurance program you want to confirm numerous things. If you are a condominium, does your insurance program meet or exceed the requirements in the Illinois Condominium Property Act? When was the last time your Association had an insurance appraisal completed to confirm that your building limit is correct? Is your deductible appropriate for your exposure? When was

the last time you went out to bid on your insurance? Going out to bid every 3-4 years is recommended.

You also want to make sure that your Fidelity coverage (which protects your association’s funds) meets state and Freddie Mac guidelines, which require that the Fidelity coverage must be in the full amount of both your association’s operating and reserve funds in the custody of the association or the management company.

Does your association have a Disaster Plan in place? If you are an apartment style association - when was the last time your association had a fire drill? Does your association include a copy of your Disaster Plan in the welcoming packet for new owners and renters?

Speaking of renters – does your association recommend to owners that rent out their unit that all renters carry an HO-4 (renters insurance) policy? Do you also require that all homeowners carry an HO-6 (condominium owners insurance) policy? Ascertaining that your residents maintain appropriate insurance coverage can reduce the risk of an association having to foot the bill for any disasters stemming from a resident’s unit.

If you are a unit owner do you obtain a copy of your association’s Certificate of Insurance every year? Keep in mind that if you have a mortgage on your unit, chances are your mortgage company obtains this document on your behalf every year. If you do not have a mortgage, you have the right to obtain this document which gives you information about your association’s insurance program.

Controlling risk in your everyday life is paramount in protecting not only yourself but the community you live in. Whether you are a homeowner, board member or service provider you should have a good strategy in place to control risk. You should form an alliance with an insurance agent, insurance company and insurance consultant you can trust to help you control your risk. Finally, draft a plan of action in the event of disaster so that you will prepared if such an event ever transpires. Evaluating and managing risk will ultimately result in reducing situations that put you at risk and put the association at risk of loss. In that game, you’re both winners!

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