5 Tips: How to Prepare for Rising HOA Insurance Rates

Homeowners’ association (HOA) insurance serves as a safety net should something go wrong on community property. Meant to protect the association from liability if there’s an accident, injury, or damage in shared spaces, proper insurance coverage is not just a good idea—it’s necessary for safeguarding your community. 

While HOA association insurance rates are rising, it’s important to maintain a comprehensive plan. Here, Jeremy Day from Associations Insurance Agency, Inc. shares tips on how to prepare for rising HOA association insurance rates and still sustain adequate coverage. Read on!

1. Review Your Governing Documents

HOA governing documents are a set of official documents that define the association’s operations, authority, and rules and regulations. They provide details on what’s expected of homeowners and board members and how the community should be run. In short, the governing documents make up the HOA’s constitution.

In addition to rules and restrictions, your governing documents will outline what insurance coverage your community must have. In some cases, they may also require homeowners to provide proof of their personal homeowners’ or HO6 insurance policy.

After reviewing your governing documents, you may find that your association is over-insured or you have unnecessary coverages. Check to see what types of coverage you need, such as:

• General liability insurance

• Property insurance

• Directors and officers (D&O)

• Umbrella insurance

• Crime and fidelity

• Workers’ compensation

If you carry excess coverage, you may want to adjust your policy. Also, look at policy limits to confirm you have adequate coverage. Understanding the insurance requirements from your governing documents can help you make more informed decisions that may lower costs.

2. Stay on Top of Reserves

To ensure the community has enough funds to cover capital improvements and unexpected expenses, associations must conduct regular, in-depth reserve studies. An HOA reserve study analyzes the association’s property to identify upcoming projects and repairs.

Based on the study results, HOA boards can determine how much money to collect from homeowners to keep the reserve account adequately funded. Well-funded communities may be granted access to better insurance financing options.

Reserve studies also give insurance carriers an idea of the risk involved with insuring the property. A community with older or ill-maintained components may carry more risk than one with equipment in good working order. A reserve study shows the community’s financial position and property condition, allowing insurance companies to offer more accurate and competitive insurance quotes.

3. Budget Carefully and Save

While some HOAs are seeing high association insurance rates now, many more communities will be similarly impacted in the year to come. During the annual budgeting process, consider inflation rates and higher insurance premiums when predicting expenses. To reach more accurate estimates:

• Update the budget to reflect rising inflation.

• Review historical data, like past financial statements, expense reports, and trends, to gauge how inflation impacted your community in the past.

• Identify spending patterns and prioritize savings.

• Consult with your community’s HOA-certified public accountant (CPA).

If you neglect to factor inflation-adjusted projections into your expense forecasting, you may not have enough to cover insurance and reconcile the budget, costing residents more in the long run. Because homeowners trust you to manage the community’s funds, it’s crucial to plan for change.

4. Reevaluate Assessments

All residents are required to pay regular HOA assessments or dues. Used to fund day-to-day operations, HOA dues pay for things like amenity upkeep, reserve fund contributions, and HOA insurance. While raising assessments may be unpopular, [CS1] sometimes doing so is critical to sufficiently cover projected expenses.

Carefully evaluate your budget and reserve study results to calculate the amount residents should pay and adjust fees to meet your community’s needs. When assessments are too low, it can disrupt your entire budget and force you to find quick financing options, such as levying a special assessment or securing an HOA loan.

5. Reach Out to Your Insurance Agent

To get a clear picture of how much your community insurance is expected to rise, sit down with your insurance agent and review your policy. Ask about possible discounts and deductible options to lower premiums. There’s no one-size-fits-all approach to association insurance, and prices, situations, and needs fluctuate, so you may be able to make adjustments or shop around for another insurance agency to reduce your spending.  

Even if you’ve been with the same broker for a while, it doesn’t hurt to get quotes from other companies. Look for insurance agencies specializing in commercial real estate and have a good reputation in the industry. Many of these companies will offer free initial consultations and estimates, which you should take advantage of.

HOA Insurance Coverage Breakdown

HOA association insurance is necessary to financially guard your community in case of an accident or property damage. Unfortunately, high insurance rates can make it challenging to keep your community protected. However, by planning and taking steps to mitigate higher premiums, your association can come out ahead.

Learn more about HOA insurance policies and why certain coverages are important with our ebook, “HOA Insurance Coverage Breakdown.” Our comprehensive guide explains the types of coverage available to HOAs and why you might need them.