Operating a business—or the day-to-day business of a co-op or condo—without adequate insurance coverage is a lot like skydiving with an untested parachute; you may land just fine...or the result could be catastrophic. If your condo or co-op building is self-managed, then you and your fellow board members are responsible for securing your community's master insurance policy. That's no small task—and this article will guide you through the steps for obtaining the best insurance coverage for your condo or co-op while staying within budget and covering all of your most important bases.
It is very important to re-shop your condo/co-op master policy regularly—rates do change from year to year, and you have to make sure that you’re getting the best deal out there. There are some important materials you should have on hand as you're weighing options for your community's master insurance policy. They include the following:
• Copies of your current declaration pages.
• Three Year Loss-Runs from the prior carriers, and detailed information on any claims your building had.
• Detailed information on the building. i.e. year built, square footage, construction type, major upgrades, number of stories, number of units, etc.
• Violation History: If your building had any violations, make sure to retain the certificates verifying that it was taken care of.
• A site plan and/or the condo/co-op bylaws.
Once you have all these elements assembled, it’s time to select the right insurance broker (or brokers). Your building's contract should be bid out to at least three insurance brokers—because there is always something that one broker knows and the other one doesn’t.
The process of selecting a broker is extremely important—after all, you want to hire a competent broker who will work for you. Make sure that the broker has knowledge in the real estate insurance industry. Naturally, every insurance broker will want to write your building’s master insurance policy, but only a few have specific specialty knowledge of the estate insurance field. Find out which insurance brokers are the experts in real estate insurance in your area; those should be the ones to represent your condo/co-op insurance needs.
Narrowing the Field
Once you’ve decided on the three insurance brokers you want to use, it’s time to assign markets. In the insurance industry, once an agent submits a policy to an insurance carrier, that carrier is locked in for that particular broker—and will therefore not release any quotes to other insurance brokers.
So how does this affect your co-op or condo association? Not every broker has the same relationship with his underwriter—most of the time it depends on their book of business with the company. You should find out what the broker’s relationship is with the company and how big a book he or she has with the insurance company.
Assigning markets will also prevent one insurance broker from blocking out all markets so other brokers can't approach them. If one insurance broker blocked a carrier without your permission and you feel that a different broker could do better, you can always sign a Broker of Record or BOR agreement so the carrier can be compelled to release a quote for the agent of your choice. Give them at least 90 days so they can negotiate coverage and pricing with the underwriters, and establish a deadline for when all the bids have to be in by (at least 30 days before your insurance expiration date), so you have enough time to present it to the rest of the board members and make any necessary changes.
Make It Binding
Now it’s time to make a decision. Get all three bids together and start comparing coverage and pricing. Don’t just go to the bottom line of the last page and award your business to the company whose premium is a few bucks cheaper. Cost is obviously a factor—after all, insurance premiums make up the largest part of most condo and co-op buildings’ expenses—but there are nuances to coverage that go beyond just dollars and cents. Here are a few things to look for:
• Insurance carrier rating. Your insurance broker should provide that, or you can find it on AM Best Insurance Rating.
• Exclusions. Insurance carriers keep on adding exclusions to their insurance policies, talk to your insurance broker about if and what is excluded from your master insurance policy.
• Gaps in Coverage. Make sure that there are no gaps in coverage, the policy should cover everything that is owned by the condo or co-op association. Make sure that all of the following coverages are included: Property Insurance, Liability Insurance, Umbrella Insurance, Flood & Quake, Building Ordinance, Sewer Backup, Boiler & Machinery, Crime Insurance, Terrorism, Lead Paint & Mold Insurance, Non-Owned-Hired Auto Insurance, Assault & Battery, Directors & Officers Insurance (D&O).
Once you choose the policy that’s right for your building, send a binding request in writing to the insurance broker. Sign all the necessary paperwork, have the broker set up policy financing if needed. A word on this: most condo and co-op master insurance policies are 'agency billed,' which means that you have to pay the full premium up-front. To avoid having to pay the full premium at once, you can set up policy financing. The interest rates are usually between 6 and 10 percent, they will only finance about 80 percent of the premium, which means that you’ll have to pay about 20 percent upon closing. Let the broker know of any mortgagee clause that needs to be added. Lastly, don't rush—give your broker enough time to process all paperwork and set everything up efficiently.
Sealing the Deal
Make sure to get certificates of insurance (COI) for all your policies. Make sure that all coverages are the same as what had been originally proposed, and make sure that the effective dates are correct. The broker should send you the actual policy in hard copy (this could sometimes take up to 30 to 60 days). The insurance company will usually come inspect the building within 30 days of binding, so set a time for the inspection, and don't sweat; this usually doesn’t take more than five to 10 minutes per building. And finally, make sure to comply with any recommendations made by the insurance carrier.