The Importance of an Annual Insurance Review for Your Association

Having the right insurance coverage is essential for any association. You may currently have property, liability, workers’ compensation, directors and officers (D&O) insurance, and even an umbrella policy. While paying premiums on time is crucial, it's not sufficient for ensuring the financial security of your association. Insurance, particularly with regard to property and liability, is an area that requires regular attention and updates rather than a one-time setup.

The Need for Regular Reviews

Conducting an annual insurance review should be a standard practice when renewing policies. This practice ensures your coverage remains relevant and adequate. With extensive experience in property management, experts advise at least a yearly assessment. Associations should evaluate their insured assets and seek expert opinions to determine if additional coverage is necessary. Depending on the intricacies of the community and its specific needs, an agent, broker, or appraiser can provide valuable insights.

Addressing Updates and Upgrades

Whenever your association undertakes significant property improvements or upgrades, it's imperative that the insurance coverage is updated accordingly. Consider a scenario where a new gate system is installed, but the insurance policy is not adjusted to cover it. Should a storm cause damage, the lack of coverage could result in a need for repair funds. This situation often leads to special assessments, causing community disputes and potential legal challenges against the association or individual board members. Even if lawsuits are avoided, the conflict and legal costs can strain the community and its financial resources. Additionally, failing to maintain appropriate insurance may breach contracts with professional property management companies, risking contract termination.

Fulfilling Fiduciary Responsibilities

Protecting, maintaining, and enhancing the property are primary fiduciary duties of the board. Inadequate insurance coverage can breach this responsibility. To minimize risk, it's essential to update insurance policies proactively. Significant changes should prompt a review, distinguishing between superficial changes and those that add or remove significant value. For instance, a new asset or a considerable project increases the property’s value and should be appropriately covered. Conversely, paying for unnecessary coverage is not financially wise.

How to Conduct a Review

Engaging a knowledgeable insurance agent or broker is crucial when adjustments to the policy are needed. They can assess the situation and recommend additional coverage if necessary. In cases of complex properties, an expert appraiser might be required. Even if the existing policy suffices, confirming adequacy is a prudent course of action.

Mid-Policy Updates and Documentation

Occasionally, insurance updates are required mid-policy. During these times, the insurance agent will inquire about the project. Keeping receipts and documentation handy is invaluable for establishing the new addition's baseline value. The agent will review the current policy to determine if a blanket policy already covers the new assets. If an update is required, an endorsement can be added to the policy, outlining the specifics of the additional coverage and any cost implications.

Building Trust with Your Insurance Partner

Maintaining a strong relationship and trust with your association’s insurance provider is vital. A good broker will seek the most effective coverage at competitive prices, but they can only address assets they know about. Always update your insurance when modifications occur to avoid issuing special assessments for unplanned repairs. Timely updates also help preserve the association's credibility and the community's morale.