Is your HOA insurance update coming up soon? While you might have the usual coverage, it is important to evaluate your community’s exposure to more unusual risks.
Uncommon Risks to Include in Your HOA Insurance Update
Insurance is a homeowners association’s first line of defense when the unexpected arises. It helps protect the association’s financial stability by providing support during times of crisis. More often than not, though, associations only have coverage for the usual risks. These include hurricanes, tornadoes, earthquakes, fires, theft, and liability. Most HOA boards take comfort in the notion that these policies are enough to completely guard the association’s finances.
But, some risks, while uncommon, can rear their ugly heads. And, when that happens, your association may not have sufficient coverage — or any coverage, for that matter. This will inevitably cause your HOA to bleed money.
Here are the more uncommon risks to include in your next HOA insurance update.
1. Derecho
Derecho, derived from the Spanish word, are straight-line wind storms. They cause heavy rains, flash floods, and forceful winds similar to hurricanes and tornadoes. To some HOAs, a derecho might seem very unlikely to happen. But, in truth, it already has.
In 2020, a derecho swept through multiple states, including Wisconsin, South Dakota, Nebraska, Indiana, and Ohio, hitting Iowa the hardest. The storm lasted for about 14 hours. The winds, which could have reached 140 mph, left behind overwhelming damage — about $7.5 billion’s worth — and widespread power outages. And nobody saw it coming.
Keep in mind, though, that derecho coverage usually comes with a high-wind deductible. Typically, the deductible amounts to 2% of the building insurance limit. Ensure your association is ready to cover the deductible should a derecho come by.
2. Convective Storm
One of the HOA insurance risks that many boards overlook is a convective storm, particularly the flooding that comes afterward. Convective storm flooding is happening more and more often, even in areas not typically susceptible.
This is what many communities went through in Florida following Hurricane Ian. Spaces that were not located in the flood zone experienced torrential rains and took in water. Because these spaces were not covered by insurance, associations were forced to repair the damages out of pocket.
Flood insurance can be very expensive. And, to a community that does not usually experience flooding, it might seem like a foolish investment. But flooding from convective storms is a real risk that should still get coverage. That way, associations will not have to suffer financially just to cover all the losses.
HOA boards should also advise homeowners to purchase their own coverage for floods. In condominiums, boards should advise unit owners located on the first floor to get flood insurance as well.
3. Polar Vortex
Some communities have coverage for burst pipes. But, if a deep freeze occurs, all the pipes could pop at once. This will cause continuous damage to the community until the problem gets resolved. Unfortunately, if your HOA is not a preferred client of a restoration company, you will have to wait a few weeks before a professional can get to you, especially if a polar vortex causes similar damage to other associations in your area.
Aside from getting insurance coverage for a polar vortex, it is a good idea to establish a good working relationship with a restoration company. Your association should put in the effort to build a strong relationship so that your HOA can end up on that company’s preferred clients list.
4. Cyberattack
When it comes to insurance, unpredictable weather is not the only risk to worry about. Another HOA insurance trend that is getting a lot of attention is cyberattack coverage. While a lot of associations do have this in their arsenal, far too many still downplay its importance. Even with a management company in charge of your funds, it is still imperative to get cyberattack insurance.
You never know what kind of information will end up in the wrong hands in the aftermath of a cyberattack. If your association deals with ACH payments for dues, a cyberattack could reveal personally identifiable information of homeowners. The same goes for associations that run online chat groups or websites.
5. Environmental Impairment
This is particularly essential for condominiums or associations that operate high-rise buildings. These types of communities are more vulnerable to environmental impairment such as mold or legionnaires disease. And the only type of insurance that will cover these risks is an EI policy.
Mold and legionnaires disease can stem from a number of things, including burst pipes. While standard policies may cover that, claims that arise from a roof leak that the association failed to address are not typically covered.
The Rising Cost of Insurance
Many HOA communities are severely underinsured. This mainly stems from a position of financial strain. Given the option, boards would rather not spend large amounts of money for policies that will likely never come into play anyway. But, it is this very notion that can pose a threat to the community at large. Believing that you don’t need coverage because a particular disaster is probably not going to happen is a one-way ticket to financial ruin.
The cost of insurance is going up, especially since more and more risks are becoming realities. Insurance companies are also erring on the side of caution. They are no longer basing their premiums and projections on historical data alone. Now, they are also incorporating new discoveries. But, insurance costs will likely stabilize once providers get all of their prices in order.
For now, though, HOA boards will have to strap up their boots and go in for the plunge. Insurance might be expensive now, but going without it is far more foolish than embracing the cost. High premiums are temporary, and bearing with it today will certainly pay off tomorrow.
The Final Word
Every HOA insurance update should include a thorough review of their current policies. In addition to that, boards should also evaluate their need for coverage for more uncommon risks. In doing so, they can protect their associations from heavy financial burdens.
Clark Simson Miller offers an array of HOA management services, including assistance with insurance. Call us today at 865.315.7505 or contact us online to request a free proposal!
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