Happy Budget Season!… it is that time of year again for our annual community association insurance budget email. The community association insurance outlook for 2018 remains positive. Every time we think we are starting to see a bottoming out of the property insurance rates they continue to surprise us and go lower. With that said we still do not think it is prudent to budget a decrease as there are too many factors out of all of our control that can impact these rates over the next year. The first two bullets below are our budget thoughts for COAs and HOAs respectively for 2018. The rest of the email goes over the various items that may impact our projections per association such as updated (increased) appraisal values, storms, claims, etc.
Please take a moment to review those items and if your association has one of those items in play please call or email us and we can provide you a custom budget figure for your property. Even if your association doesn’t have one of those issues we are still happy to provide custom budgets for any association that needs it. Thank you all again for your trust, any questions let us know.
Budget Outlook for COAs & HOAs that Buy Master Property Insurance on Buildings (townhomes): As you all know the property insurance premium is the main cost driver of the overall insurance program. For the past 5 years, property premiums have been decreasing mainly due to the lack of storms and influx of investment capital into the reinsurance market. While we expect rates to continue to flatten or decrease, we believe it would be prudent to budget a modest 3% inflationary increase to the overall annual insurance premium budget. Most associations in 2018 will likely see a flat renewal to slight decrease but building in a little padding is advisable considering how quickly things can change in this market. (NOTE: There are several factors that could be in place at your association that could negatively impact this outlook (especially if you are due for an appraisal update in 2018. Make sure you review the “Heads Up” bullet below.)
Budget Outlook for HOAs: We suggest budgeting a 5% overall increase in 2018. The reason is that we continue to see a slight upward trend on the General Liability & Directors & Officers rates and since the property insurance premiums are a much lower overall percentage of the association’s annual premiums the rate decrease in the property will not offset the liability rate increases in the same way as it would a condo. (Note: Again note the bullets below that explain the factors that can impact this projection especially if you have had a lot of claim activity at the association OR if you are still under development and are adding additional buildings, amenities, etc…)
Heads Up: Items that Could Potentially Increase Insurance Premiums: There are several factors that can negatively impact insurance premiums that are NOT accounted for above. I encourage everyone to review the bulleted list below to see if any apply to your Property. If they do feel free to discuss with me or Negar directly prior to formalizing our association’s insurance budget.Appraisal Updates: If you are a condo and haven’t had an appraisal conducted in the past 36 months, then per the 718 statute, your association would be due for an update prior to the next renewal. We’ve been seeing a rise in Replacement Cost Values in recent appraisals (increase in labor costs, materials, etc…). Since property insurance premiums are based in part on values, when the values increase, the premiums will as well. For example, if the association hasn’t had an appraisal update in 3 years and the replacement values increase by 10% and the rate falls by 5% you are still looking at an approximate 5% increase at renewal.
Flood Insurance: If your association has a large percentage of it’s overall insurance premiums in flood insurance you can expect the flood premiums to continue to increase in 2018. We are projecting a 10% increase in Flood and this will of course impact the overall premium even if the property insurance remains flat.
Developer Control: If your COA or HOA is still in the course of development it is vital that when you complete your budget for 2018 that you have a schedule of what buildings or homes are expected to be built and in place by the 2018 insurance renewal. When we add buildings or homes this adds increased exposures to the insurance program which will cause premiums to increase on the property, general liability, D&O and umbrella insurance programs. Same for additional amenities being added (pools, sports courts, cabanas, etc…)
Roof Covering Age: If the building roof coverings are over 20 years old, this could contribute to increased property rates. Especially for communities with original roofs from the 80’s or 90’s.
Roof Replacements: If your Association’s roofs have been replaced since the last renewal, please notify our team so that we may update our files accordingly. This is vital to insuring we are getting the association the best rate possible.
Aluminum Wiring: If your association was built prior to the mid 1970’s, and you have unprotected aluminum wiring in your buildings, this condition severely restricts the insurance carriers that will offer quotes on your account which causes pressure on the predictions above.
Construction Defects: Similar to the aluminum wiring, when an association has unrepaired defects, depending on the type of defects, this can significantly reduce the pool of carriers that will offer quotes causing pressure on the predictions above.
Defect Repairs: If your association has completed the construction defect work since your 2017 insurance renewal please alert us as this can have a POSITIVE impact on the renewal premiums.
Restoration Projects: If your association is scheduled to do major exterior repair work for construction defects you should discuss with us before budgeting. This needs to be properly disclosed to the insurance carrier and can cause pressure on predictions above. Remember that when construction work is done and defects are repaired rates will return to where they should be.
CITIZENS: If your association is with CITIZENS Insurance Company, especially if it is over 30 years old, we need to separately discuss your budget figures.
Claims: If your association has had any large property claims (fires, water damage, sinkholes, etc…) this can cause upward pressure on rates. Sinkholes specifically can cause significant rate increases. This also applies to the general liability policy & D&O policies. Large slip and fall, assault & battery or monetary demands can have significant impacts on those renewal lines as well.
Hurricanes: The historically three busiest hurricane months are still ahead of us (August, September, October). If a category 3 or higher storm makes landfall in the US, especially the Gulf Coast, this could have a negative impact on property insurance rates in 2018. The larger the storm and the higher populated area it hits the worst the impact would be.
Large Global Disasters: As we witnessed with the 2011 Tsunami in Japan this event was so catastrophic to a highly insured area (Japan) that the total insured losses for the event were so large that they had wide spread impacts on global insurance rates. Another event like this, large earthquakes, tsunamis, floods, etc… can negatively impact our rates here at home.
Governmental Interaction: As we have experienced for years with CITIZENS, the Government can pass laws, change rules or impose assessments, fees and taxes that that have impacts on the property premiums we pay.
Again if you want a custom budget for your community we are happy to provide that to you. Just email us and let us know. Thank you all very much for everything. Good luck with storm/budget season!!!
Phillip Masi, CIRMS
Senior Vice President
300 Colonial Center Parkway | Suite 270 | Lake Mary, FL 32746
With more than 45 years experience in the Central Florida area, Hara Community 1st Advisors has the expertise needed to efficiently manage your Condominium or Homeowner’s Association while providing the highest level of service to Boards and Owners. Contact HMI’s Regional Director Rick Michaud, or visit HMI online to learn more about their variety of client-customized services today.