Wind and Hail continues to be the largest and most problematic insurance claim for Colorado. In fact, last years’ May 8, 2017 hail storm cost Colorado’s Insurance Carriers $2.3 Billion in that single event.
As wind and hail continues to be our number one costly risk, insurance carriers will continue to make coverage changes on Homeowners Association’s policies. Do you really understand your Homeowners Association’s insurance coverage?
Many insurance carriers are now mandating wind and hail deductibles for Homeowners Associations across Colorado, with the exception in some of the mountain regions. These separate wind and hail deductibles range anywhere from 1%, 2%, 5%, 10% and 25% and some carriers are now requesting to exclude wind and hail coverage all together. The most common question we get is “How is our wind and hail deductible calculated for our Homeowners Association”? There are a few ways that insurance companies determine your wind/hail deductible.
Calculating Replacement Cost
The most common way is to calculate the replacement cost coverage of the buildings and structures, and the wind/hail deductible is then the percentage applied to the total building cost. For example, if your association choose to have a 5% wind/hail deductible and your HOA is insured for $11 million (the wind/hail deductible would be 5% X $11,000,000= $550,000 deductible). So in essence, if an HOA had 11 buildings and each building was insured for $1 million (each building would have a $50,000 deductible). Some insurance carriers are now doing the 5% wind/hail deductible on the entire association before they would pay a claim (meaning 5% of the $11 million= $550,000). So if the HOA had a tree that blew on their building during a wind storm, the HOA would be out of pocket the $550,000 deductible before the insurance carrier will pay the claim. So it’s important to know if your HOA has a per building wind/hail deductible or something larger.
Because of the mandating of these wind and hail deductibles on Homeowners Associations, it is recommended every homeowner contact their own personal interior insurance agent to purchase Loss Assessment Coverage. Be sure to have conversations on the terms, conditions and exclusions of the Loss Assessment endorsement (as many carriers are now limiting the amount of coverage that applies toward wind & hail special assessments). In some cases, insurance companies are excluding wind and hail special assessments under their loss assessment endorsement, and others are capping the coverage to $1,000 per claim regardless of how much coverage a homeowner purchased. Because change is always constant, it is suggested that homeowners review their personal insurance every year to understand changes to their policies. Remember, the Division of Insurance only allows insurance carriers to change policies at the policy renewal period and notifications of these changes are required to be sent to homeowners.
Cosmetic Damage Exclusion
Another endorsement to watch out for in a Homeowners Association’s insurance policy is Cosmetic Damage Exclusion. According to Insurance.com, over 700 property and casualty insurance carriers are now excluding cosmetic damage on home insurance and HOA insurance. The definition of Cosmetic Damage Exclusion is: “superficial damage (from hail) that alters the appearance of the roof, but does not prohibit it from functioning as a moisture barrier”. So if your HOA has a Cosmetic Damage Exclusion endorsement and your HOA experiences hail hits on the roof but the roof still holds its original function and water is not penetrating through the roof, no coverage applies under the HOA’s insurance policy. Here are a few examples of Cosmetic Hail Damage to a roof.
So how does a Homeowners Association protect from wind and hail claims in Colorado?
The insurance industry does offer a solution called a Wind/Hail Buy Back insurance policy. This policy is specific to each Homeowners Association’s needs. Wind/Hail Buy Back policies are designed to “buy back” the wind and hail deductible to a reasonable amount for the HOA. These buy back policies are usually paid in full (for the year) and are fully earned policies (meaning no refunds will be issued if the policy cancels in the middle of the policy period). If an HOA cannot pay for the policy in full, most insurance carriers will offer a finance option for the HOA to make payments. It’s important to know that the wind/hail buy back policy follows the coverage for the Master Building Insurance policy for the HOA. If the HOA has replacement cost coverage on the master building insurance policy, then the buy back policy should also offer replacement cost. However, if the HOA does have a Cosmetic Damage Exclusion endorsement, that too could apply on your buy back policy. These buy back policies can be expensive policies, and HOAs want them to work effectively when they purchase them. So it is recommend having conversations with your insurance agent on your coverage, exclusions and endorsements.
Written by: Ella Washington
Article from https://sites.google.com/state.co.us/summer-2018-real-estate-news/hoas-wind-hail