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Crash Course in Community Association Insurance Coverage

March 20, 2024

Community associations, which include condominiums, homeowners' associations (HOAs), and cooperatives, play an essential role in maintaining the value and livability of their properties. As a community manager, you must recognize your community's requirements, which are vital to successful management decisions.

Protecting your association's safety, well-being, and longevity is a primary concern that depends on community association insurance.

What You Will Learn

  • Fundamentals of Community Association Management
  • What Risks Do Community Associations Face?
  • Essential Insurance Coverages for Community Associations
  • Water Damage Responsibilities
  • Getting Started With Risk Management as a Community Association Manager

Fundamentals of Community Association Management

Managing a community association entails unique responsibilities. In addition to mastering the complexities of community association insurance coverage, you’ll need: 

  • Effective communication skills
  • A thorough understanding of community operations
  • To be current on existing and new laws that affect associations
  • A strong understanding of finances, budgets, legal issues, and facilities management 

Navigating the complexities of insurance can be intimidating, especially for a new community manager. That’s why Sahouri Insurance is providing this crash course. It aims to deliver a foundational understanding of the various coverages essential to insurance for community association programs.

We want our insureds to understand the dynamics of community association management. It is universally beneficial when your knowledge and insights steer you to make the best and most informed decisions as you navigate the intricacies of insurance for community associations. 

A thorough review of the risks involved with community association management and the various insurance options available will assist you in safeguarding your community's assets and reducing potential liabilities. Here's a breakdown of the most common and critical risks and associated insurance coverages for community associations.

What Risks Do Community Associations Face?

Community associations, whether HOAs, condominiums, or cooperatives, face a range of common and potentially devastating risks. Understanding these risks is crucial, as they directly influence the insurance coverages necessary to protect the association, its board members, employees, and residents. Here are some of the most prevalent risks:

  1. Liability risks: Community associations can be held liable for various incidents, such as slip-and-fall accidents in common areas, property damage due to negligence, or discrimination claims.
  2. Property damage: Natural disasters like earthquakes, floods, or fires can cause extensive damage to association-owned properties and common areas.
  3. Cybersecurity threats: In today's digital age, community associations are increasingly vulnerable to cyberattacks, data breaches, and identity theft. Such incidents can expose sensitive resident information, leading to regulatory penalties, reputational damage, and financial losses.
  4. Management errors: Board members and association officers may face allegations of mismanagement, breaches of fiduciary duty, or failure to comply with governing documents and regulations.
  5. Employee-related risks: Workers may suffer work-related injuries or illnesses, exposing associations to legal liabilities and financial burdens.
  6. Financial mismanagement: Improper financial practices, embezzlement, or fraud within the association can result in significant financial losses.
  7. Regulatory compliance: Community associations must adhere to a complex web of local, state, and federal laws and regulations. Failure to comply can lead to fines, legal actions, and reputational damage.

Addressing these risks requires a tailored approach to insurance coverage, risk assessment, and proactive risk management strategies. By understanding the unique challenges community associations face, managers can make informed decisions to safeguard their communities and enhance resilience against potential threats.

Essential Insurance Coverages for Community Associations

  • Directors & officers (D&O) liability: This insurance protects board members and association officers from personal liability for alleged errors and omissions in their decision-making capacity. D&O insurance can cover situations like lawsuits brought about by contract disputes or accusations of poor management.
  • Workers' compensation: This mandatory insurance safeguards your association from financial burdens associated with employee injuries or illnesses sustained on the job. It covers medical expenses, lost wages, and rehabilitation costs for covered employees.
  • Umbrella liability: An umbrella policy acts as an additional layer of protection that kicks in when primary liability coverage limits are exhausted. It covers unforeseen events like slip-and-fall accidents or third-party damage to public property.
  • Full-value earthquake: Standard property insurance policies often limit earthquake damage coverage. A full-value earthquake policy ensures your association receives the total cost of rebuilding the property in case of a quake, minimizing financial hardship.
  • Guaranteed replacement cost (GRC): Traditional property insurance may only cover the depreciated value of damaged buildings. GRC ensures your association receives enough funds to rebuild the property to its pre-loss condition, regardless of depreciation.
  • Cyber, crime, and fidelity: These coverages protect against financial losses from cyberattacks, employee theft, or fraud. With the increasing prevalence of cybercrime, these policies are becoming increasingly important for community associations.
  • Flood insurance: While not always mandatory, flood insurance is crucial for communities located in high-risk zones. It provides financial protection from flood damage, typically excluded from standard property insurance policies.

Water Damage Responsibilities

It is also critically important to understand water damage responsibilities. In HOA-managed properties, water damage responsibility is typically divided between the HOA for common areas and homeowners for individual units, based on the HOA’s governing documents. 

Homeowners should review these documents, determine the damage’s cause, communicate with the HOA, and file insurance claims accordingly. Preventive measures and clear communication can help minimize disputes and clarify responsibilities.

Getting Started With Risk Management as a Community Association Manager

Beyond securing essential insurance, proactive risk management is paramount for safeguarding your community. Here are some steps to get you started:

  • Conduct a comprehensive risk assessment: Analyze your community's vulnerabilities, including potential hazards within buildings, common areas, and surrounding grounds.
  • Identify and prioritize risks: Evaluate potential risks based on their likelihood of occurring and the severity of possible consequences, including recognizing the severe implications of rising cybersecurity risks for even the smallest HOAs and communities.
  • Develop a risk management plan: This plan outlines your association's approach to mitigating and responding to identified risks.
  • Communicate and educate: Keep board members, residents, and vendors informed about risk management strategies, and foster a culture of risk awareness.
  • Implement preventive measures: Regular maintenance, safety inspections, and investment in security systems can significantly reduce the likelihood of incidents.

You Don't Have to Go It Alone

Navigating the complexities of insurance and developing a robust risk management plan can be challenging for new community managers. Sahouri Insurance understands the unique needs of community associations. Our team of dedicated, experienced advocates is eager to deliver a technology-driven, consulting-based experience that addresses your community's risks and exposures. We use our access to specialized insurance markets and expertise to tailor a comprehensive insurance program that results in full coverage and peace of mind. 

Contact Sahouri Insurance for a free, personalized crash course in community association insurance. Our team of experts is ready to guide you through the essential coverage and help you develop a proactive risk management strategy for your community. Let us be your trusted advocate in navigating the ever-changing insurance landscape.

As an independent insurance brokerage firm, we guide our Guests through a technology-driven, consulting-based experience that integrates corporate Risk, Health, and Benefits policies through one, centralized Advocacy Team.