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“Hey, Jackie. We need multiple insurance bids. Can you make that happen?”
No.
Ok, well kind of. Our contracts—and our client’s expectations— consist of bidding costly items thoroughly (if not sometimes pricing things to death). Understanding the proposal process will start you off on very good footing when explaining to your boards how you and your brokers arrived at their numbers.
The insurance industry is unlike any other when it comes to “quoting.” Insurance carriers will only provide one quote, to one broker, on a first come, first served basis. But remember, you as the buyer have the last word, so you get to choose what broker you want to work with ultimately. The most important aspect of the decision-making process is to choose a broker who is experienced with condominium insurance. Interview your broker to find out his background and experience, this will save you a lot of headache.
Property Versus Liability: What is the difference, anyway?
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“This is a common question I get asked all the time,” Ryan conveyed to me. We figured initiating this article with this quandary was the best path
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to dissecting a policy and assessing the adequacy of coverage.
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Your property insurance covers the structure itself. Some policies will also cover association-owned contents—not including the personal belongings of a unit owner or other residence, hence the need for an owner to carry their HO-6 policy as well. (Unit policies are addressed in another article in this issue.)
Your liability insurance covers bodily injury and property damage allegedly caused by the association and its agents. An example could be coverage for medical bills to an individual suffering from a trip and fall caused by failure to de-ice in frigid conditions, or not repairing trip hazards in a walkway
Property Coverage: Guaranteed Replacement Cost, Specified Limits, Blanket Limits, and Insurance Building Valuation
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Your building limits are typically established based on the “replacement value” of the property you are insuring. This value does not include the cost of land, so it often has nothing to do with the selling
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value of the units. A third-party company will provide a valuation, or you can have your insurance broker or carrier provide a valuation using the Marshall & Swift valuation program, which all insurance carriers use. This insurable value is extremely important, because it is the single largest factor in determining insurance premiums.
Much of my career portfolio consists of single structure properties with 13 to 200 units. Because of that, most proposals I come across use “Guaranteed Replacement Cost,” which is a unique feature that provides unlimited building coverage. “This removes the worry about underinsuring, paying for a valuation, or being penalized by co-insurance,”
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Alas, mateys, we could go on and on about the subject of insurance coverage. But we want to impart to you, more than the subjective advice given in the column above. You don’t have to be the Magellan of insurance proposals and go it alone. You are the management expert
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hired by your communities to have the confidence in knowing the needs of your association. With that knowledge reach out to as many of CAI’s insurance professionals as you need to find the right fit for your clients. Your brokers may have the compass—but you have the map.
Ryan advises. “Co-insurance is a way for an insurance carrier to penalize you after a loss, if you failed to insure the buildings properly.” And the insurance carrier gets to decide what is and was proper. Ryan recommends: “Always . . . always . . . ask for co-insurance to be removed.” This is typically a lending requirement now as well.
When reviewing coverage this spring, I was presented with an alternative property quote which was a “Blanket Limit,” rather than Guaranteed Replacement Cost on a proposal for insuring multiple structures. I started seeing spots again . . . Why oh why would we not select the warm, safe security of Guaranteed Replacement?
The answer was as simple as multiple structures. The blanket coverage was built based on the values of all buildings, and then we get to use this grand total of $31 million for any single building if we needed. The insurance carrier providing the quote for coverage considered the likelihood of actually needing all $31 million to cover all structures at once (multiple buildings consisting of townhomes, flats, parking structures and common buildings) as being very low. And pricing reflected the low risk, so it was a correct choice for this client. Plus, it fit within their expected increase in premium for the year. They have elected to conduct a third-party valuation to ensure the number was spot-on in the unlikely event a full asset replacement was necessary following an insured catastrophe. Since this property is fully “sprinklered,” the likelihood is low, but the valuation will be very helpful with respect to earthquake coverage, because earthquake policies are always a fixed limit.
“Something to keep an eye out for: The rating on one proposal for Guaranteed Replacement cost was several million lower than the not-guaranteed limit,” notes Ryan. “Be mindful of all structures being included and valued properly in the proposals. A discrepancy such as this may be an indicator that your two proposals may be like comparing sloops to schooners.
“Remember, insurance is just a premium when you’re trying to get the lowest price, or find the best deal . . . but when you have a loss, insurance is really a contract.” Ryan advises. “You need to pay attention to the details, and make sure you have the best contract in place. Otherwise, you get what you pay for.”
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