By Allen Hudson Allen is a current faculty member and professor for the National Alliance of Insurance Education & Research (NAIER) and the Professional Insurance Agents Association (PIA). The Alliance is one of the most prestigious insurance schools in the country and is the ONLY facilitator of the CIC and CRM designations. Allen has been named Business Insurance Magazine “Top 40 Under 40” and IBAs coveted “Top 100 Brokers in the Country” both in 2016 and again in 2017. He is the Vice President of Commercial Risks at Sahouri Insurance & Financial headquartered in Tysons, VA, as well as the architect of the Community Underwriters Specialty Program (CUSP).
Community Association Insurance Financing
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t’s important to begin with a brief explanation of how insurance for master homeowners and condo associations are rated. The primary “Package” policy coverages are property (first party) and liability (third party). Property rates are established based on building construction, building occupancy, building protections and exposure (to different types of losses). These factors are underwritten to calculate a property rate which varies from $0.05 cents to as much as $0.50 or more (per $100 in building value). Liability is comparatively simple and is rated based on a number of units or homes and is somewhat affected by the litigiousness of locality and state.
The other factors that affect rate (to a lesser extent) are the ancillary coverages chosen. Flood and earthquake are very rarely included in a package policy and should be explicitly requested if you decide your association needs them. If you live in an older building that would be considered antiquated by new construction standards, you MUST make sure you carry enough “Ordinance or Law” coverage. This is coverage above and beyond the costs to repair with like kind and quality (replacement cost definition in policy).
Don’t make the mistake of assuming that having guaranteed replacement cost coverage will protect you. Alone this only guarantee’s that the building will be reconstructed in the same fashion it was before the loss. Ordinance/Law costs can be 10-20% of reconstruction costs to an older building.
Building Valuation and the Coinsurance Clause The simple way to avoid coinsurance is to request (at a minimum) an Agreed Value (AV) endorsement. There are even broader endorsements available, but AV will at least pay for loss up to the building limit listed on the policy. Unendorsed, the standard ISO property policy WILL include a coinsurance clause. Most often we see 80, 90 or 100% requirements. Avoid the latter at all costs. Without over complicating things, an 80% coinsurance clause means that there will be a penalty to the loss reimbursement equal to the difference between what it was insured for (building limit) versus what it should have been insured for (80% of actual building value). And don’t incorrectly assume it’s a moot point because you aren’t worried about a total loss. This clause can be calculated and applied to a loss of any size! How do we make sense of these (and dozens of other) coverage differences? There is a generally accepted standard community association RFP spreadsheet that has been in circulation for years. It was industry developed gradually over time, as opposed to being created by an agent with their own interests in mind. You can request a free (independent) copy by emailing cusp@sahouri. com. Having a bidding agent fill this out cuts
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