HOA P/C Insurance

I was visiting with one of the HOA Board members of the HOA I belong to MN, a suburb of Minneapolis. We were discussing the increase in property/casualty and he told me that he was also on the SW HOA Board and roughly 35% of the HOAs in that region could not obtain property/casualty insurance for their HOA. For those that could obtain the insurance, the rates for the same coverage increased significantly. This included our HOA.

The rapid increase of property/casualty rates has also affected homeowners. This surprises some, not me.

At the beginning of 2020 I put together a presentation for OLLI [adult education in Tucson]. I also have given it to several HOAs. The presentation was entitled “Long Term Trends Which May Affect Your Finances”. The Presentation identified seven trends which I believe were not only coming but happening right now. One of the trends was the increasing costs of insurance from the affects of natural disasters.

In the 1980s there were 28 natural disaster with an average annual cost of $12.8 Billion per year. The 1990s the total increased to 52 events with an average cost of $27.0 Billion per year. The next decade, 2000-2009, the total increased to 59 events with an average annual cost of $51 Billion. The last decade, 2010-2019, there 119 events with an average annual cost of $80.2 Billion. This decade the US is on track for new records.

The trend is clear.

Note the following quotes:
* After CA wildfires in 2018, a quote from the CA State Insurance Commissioner reported by CBS News in 2019: “50,000 homeowners in CA cannot get property or casualty insurance because of increased risk to their homes…new normal could mean a triple or quadruple increase in premiums.”
* On the website of Munich RE, one leaders in global reinsurance: “Climate change is real and is influencing weather-related natural disasters. The risk situation is changing depending on the region and the natural hazard in question, for example tropical cyclones, thunderstorms, floods or droughts. Insurers need to fully understand these changes for their own risk management purposes…For five decades, Munich Re has been analyzing the effects that global warming and natural climate variations have on weather-related natural disasters.”
* There is a blog entitled “HOA Insurance: A growing burden for condo owners” dated May, 2024 on ProTec website, an HOA building service company. Among other things, the blog states “the increasing frequency and severity of natural disasters have immense pressure on insurance companies“.

Again, this is not new nor unexpected. However, for many, until it does affects the pocketbook, its not real. Well, it is now affecting the pocketbook and I believe this will continue.

Some wish to blame insurance companies for rate increases. I understand, it is easy to do so, but is not reasonable. Insurance companies are in the business of making profits. When their expenses increase in the form of higher and/or unexpected claims, they will pass these extra costs on to the insured. Insurance companies will not offer insurance when they believe the claims risk is to high and/or they cannot obtain reinsurance to spread out the risk.

What can HOAs do? There are things.
1] It is important for HOAs [and private consumers] to shop insurance companies as a specific company’s premium can be based on a number of factors including recent claims history which may result in higher premiums than a competitor. At the same time, it is likely that most companies are using similar or the same climate change data.
2] Keep the campus up to date and reserves adequate for current expenses while planning for deferred maintenance. Even though many HOAs in the Twin City area were not able to obtain property insurance if they were built before 1990, our HOA was able to do so. A primary factor is our HOA maintained the building and completed necessary projects which reduced the overall risk to the property.
3] Funding reserves for deferred maintenance is essential for not only the financial health of the HOA but also significant in obtaining property/casualty insurance. From personal experience at a previous HOA, I have learned that too often the most expensive owners at an HOA are the ones who want to reduce fees by not adequately funding reserves. This short-term and ill-informed perspective can often cost the HOA much more in the long-run.
4] Each owner has the right and responsibility to stay informed about HOA issues and voicing concerns when appropriate. This can be done in a thoughtful informed manner. It is also nice to voice jobs well done. But remember, thoughtful intelligent people can disagree without being disagreeable. The few that cannot do so can be a negative drag for the HOA Board and the HOA overall making more difficult to maintain a healthy campus and lifestyle. Don’t be one those few HOA owners.

Finally, I do not see a scenario where the trend will not continue. However, there are things we can do individually, collectively as HOAs, and as a society to address the trend and reduce its affects. For me, it starts with only supporting candidates in a local, state and federal elections who understand the science behind the increasing frequency and costs of natural disasters and are willing to implement actions to reduce the risk in the future.