Archive for May 2011

Condo, Coop and HOA Master Insurance Premium

I’m sure that a lot of condo/coop & HOA board members have the following question: how come on my Automobile & HO-6 Insurance policies I pay the premiums directly to the insurance carrier, and I have the option of monthly installments, whereas on the condo/coop or HOA master insurance policy I have to pay the premiums to my agent or broker, and the premium has to be paid in full upon binding of the policy and if I can’t afford to pay it in full then we have to get premium financing?

That’s a very good question, and it all comes down to 2 main ways that insurance premiums are being charged:

  1. Direct Bill
  2. Agency Bill

Direct Bill

Most personal lines insurance policies, including personal automobile insurance, homeowners insurance, renter’s insurance and personal umbrella insurance are direct bill. This means that the insurance carrier is billing the policy holder directly. Most personal lines insurance policies come with the option of quarterly or monthly installments, you’ll have to pay a down payment (usually 20%) upon binding, and the rest will be split up to quarterly or monthly installments. In most cases you’ll be charged a small fee for every installment anywhere from $1 to $6 depending if you set up automatic withdrawals from your bank account. Once the policy is in effect, the agent or broker has nothing to do with the billing of your insurance policy (of course he’ll get a notice of cancellation if you don’t pay your premium and call you up to make sure that you’ll make a payment so your policy shouldn’t cancel). This is why on all your personal insurance policies you pay the insurance company directly and you have the options of installments.

Agency Bill

But when it comes to your condo/coop or HOA’s master insurance policy it’s a whole different story. Most condo/coop or HOA policies are agency billed, this means that the insurance carrier is billing the insurance broker the full policy premium, and the broker has to bill the condo/coop or HOA association. The broker usually has 30 to 90 days to pay the full premium to the insurance carrier. This is the reason why you pay the insurance premiums to the insurance agent or broker and why it has to be paid in full. But what if your condo/coop or HOA association can’t afford to pay the whole premium at once?

Premium Financing

Most condo/coop or HOA associations don’t have extra money lying around, so when your policy premium is more than $20,000 it’s kind of hard to pay the full amount up front, that’s when premium financing comes in to play. Your insurance broker should help you out with the premium financing; there are a lot of good financing companies out there. The interest rates are usually between 6 & 10%. They will only finance about 80% of the premium, which means that you’ll have to pay about 20% upon closing.

How does the whole financing process work? The financing company sends a check of the full premium (minus your 20% down payment) to the insurance broker. Then the insurance broker sends to the insurance company the down payment that he got from the condo/coop or HOA and the check that he got from the financing company (minus his commissions). Then the financing company is going to bill you monthly or quarterly with a 6 to 10% interest rate.

The following is something that unfortunately happens quite often: The insured made sure to have the policy paid up in full, whether by paying the full amount or by getting premium financing, and after a few weeks they get a notice of cancellation in the mail. What happened here? Very simple, your broker received the full amount, now he has up to 60 days to pay the company, and very often brokers neglect or on purposely delay paying the insurance company right away. This is wrong and illegal and you should stay away from such insurance brokers.

Self-Managed Condo/Coop Associations Master Insurance Shopping

If your condo or coop building is self-managed then you the board member is responsible for the shopping of the condo/coop associations master insurance policy. This article will guide you through the steps of shopping for your associations insurance.

Pre-Shopping

It is very important to re-shop your condo/coop master policy every year, rates change from year to year, and you have to make sure that you are getting the best deal out there.

Here are some stuff you should have ready when you re-shop you master insurance policy.

  • Copies of your current declaration pages.
  • 3 Year Loss-Runs from the prior carriers, and detailed information on any claim you had.
  • Make sure to have all the information on the building. i.e. Year Built, Square Footage, Construction Type, Year Upgrades, Number of Stories and # of Units.
  • If your building had any violations make sure to have the certificates that it was taken care of.
  • A site plan or the condo/coop bylaws is always helpful

Once you have all the above info ready, it’s time to select the right insurance brokers. You should give it out to market to at least 3 insurance brokers, there is always something that one broker knows and the other one doesn’t.

Selecting the Agents

You should be very careful in selecting the right brokers that will work for you. Make sure that the broker has knowledge in the real estate insurance industry. Every insurance broker will want to write your buildings master insurance policy, but only a few are knowledgeable in the real estate insurance field. Find out which insurance brokers are the experts in real estate insurance in your area, and they should be the once to represent your condo/coop insurance needs.

Once you’ve decided on the 3 insurance brokers you want to use, it’s time to assign markets. What is assigning markets and why do I need to do that? The way it works in insurance is that once an agent submits a policy to an insurance carrier that carrier would be locked in for that broker and the company would not release any quotes to other insurance brokers. So how does this affect your condo/coop 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 of a book he has with the insurance company. Assigning markets will also prevent one insurance broker from blocking out all markets so other brokers shouldn’t be able to approach them. If one insurance broker blocked a carrier without your permission and you feel that a different broker could do better you could always sign a BOR (Broker of Record) so the carrier should 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. Make a deadline when all the bids have to be in by (at least 30 days before you insurance expiration date), so you have enough time to present it to the rest of the board members and make the necessary changes.

Binding

Now it’s time to make a decision. Get all 3 bids together and start comparing coverage and pricing. Don’t just go to the last page on the bottom line and look at the total premium and whoever is a buck cheaper gets the deal, insurance has much more to it than just price (I’m not saying that price is not a big factor, after all insurance premiums make up the largest part of most condo and coop buildings expenses). Here are a few things to look for:

  • Coverage comparison.
  • 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 the 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 is no gaps in coverage, the policy should cover everything that is owned by the condo or coop association. Make sure that all of the following coverages are included:
  1. Property Insurance
  2. Liability Insurance
  3. Umbrella Insurance
  4. Flood & Quake
  5. Building Ordinance
  6. Sewer Back up
  7. Boiler & Machinery
  8. Crime Insurance
  9. Terrorism
  10. Lead Paint & Mold Insurance
  11. Non-Owned-Hired Auto Insurance
  12. Assault & Battery
  13. 13. Directors & Officers Insurance (D&O)

Once you choose the policy that’s right for you, send a binding request IN WRITING to the insurance broker. Sign all the necessary paper work, have the broker set up policy financing if needed (most condo & coop 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 set up a policy financing), the interest rates are usually between 6 & 10%, they will only finance about 80% of the premium which means that you’ll have to pay about 20% upon closing. Let the broker know of any mortgagee clause that needs to be added. Don’t come running the last minute, give your broker enough time to process all paper work and set everything up efficiently.

Post Binding

Make sure to get certificates of insurance (COI) for all your policies. Make sure that all coverages are the same of what he had 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, set a time for the inspection, and be there on time, this usually doesn’t take more that 5 to 10 minutes per building. Make sure to comply with any recommendations made by the insurance carrier.

Shopping For Condo/Coop Master Insurance

Click Here for a Free No Obligation Condo or Coop Association Master Insurance Quote

Make sure that your managing agent markets out your insurance policy every year. Rates change from year to year, so you have to make sure that you’re getting the best policy out there. It’s very important that he should be giving it out to at least 3 insurance brokers. The time to start shopping for insurance is 90 days before your renewal date. This way the brokers have enough time to negotiate coverage & pricing with the underwriters. It’s also very important to make sure that the managing agent is not getting any kickbacks from the insurance brokers, it is illegal and it creates a conflict of interest, so you’re not getting the best insurance policy that your condo/coop deserves.

By Izzy Green
Evergreen P&C Insurance Agency, Inc.
izzy@trustevergreen.com

What Building Owners And Landlords Should Know About Building Insurance

If your building is managed by a professional property management company, they are probably the ones handling the insurance for your building. Having a professional property management firm handling your insurance, doesn’t mean that landlord’s doesn’t have to know anything about insurance, after all they are the ones making the final decisions on the insurance, and they’re the ones that will be effected if anything was not right on the insurance policy.

Here are just a few things you should know when it comes to the insurance of your buildings.

Shopping for Insurance

Make sure that your managing agent shop’s out your insurance policy every year. Rates change from year to year, so you have to make sure that you’re getting the best policy out there. The time to start shopping for insurance is 90 days before your renewal date. This way the broker has enough time to negotiate coverage & pricing with the underwriters. It’s also very important to make sure that the managing agent is not getting any kickbacks from the insurance broker, it is illegal and it creates a conflict of interest, so you’re not getting the best insurance policy that you deserve.

Insurance Company Rating & Stability

It is important to make sure that your carrier is an admitted insurance company in your state. This will help you in the event that your insurance company denies a claim, or becomes insolvent. The insurance company should have a rating of at least ‘A’ or better, rated by A.M. Best rating. You could check the company’s rating at www.ambest.com/consumer. The size of the insurance company is another important factor to consider. Make sure that they are a big insurance company and have enough money in reserve. You”ll find the size on A.M Best. The biggest size is XV.

General Liability Insurance

Over the years, insurance companies have been adding exclusions to their GL (general liability) Insurance policies. Some of the most common exclusions to look out for are; 1) Lead & Mold Liability Exclusion – This will exclude any claims for lead & mold contamination. Any building built prior to 1980 should make sure to have lead coverage included in their policy. 2) Employment Practices Liability Insurance (EPLI) Exclusion – This will exclude any litigation for employment related claims, i.e. minimum-wage discrimination, wrongful termination, etc. 3) Assault & Battery Exclusion.

Also, make sure to add ‘Hired & Non Owned Auto‘ coverage to your GL policy. This will cover third party damages, in the event of an accident caused by you or anyone else, while driving for business use. i.e. if the superintendant of the building causes an accident, even with his own car, while going to the store to pick up building supplies, the association is then liable for those damages, and the auto insurance carrier will subrogate against you.

Workers’ Compensation

When a building has employees, we all know that you need to have a workers’ compensation policy in place. But what if your building does not have any permanent employees? Even if your building doesn’t have any employees, you should still carry a workers’ comp policy, for those times that a laborer is hired, to do any type of work for your coop or condo building. This will protect you against any claims from injured workers. This is generally not an expensive policy, because the rates are based on the amount of annual payroll, (which is obviously low in your case,) and also the workers comp rates are regulated by the state.

Umbrella Insurance

Umbrella/Excess insurance is very important for a building. There are programs out there, which will cover you up to Two Hundred Million Dollars ($200,000,000), at a very manageable premium. Sometimes you might find that your management company has their own master umbrella policy, which covers all the buildings that they manage. This is not good for your building for 2 reasons; 1) the banks might give the unit owners a hard time with mortgages if you don’t have your own umbrella policy. 2) You might be overpaying, since your rates will be affected by claims from any one of the other buildings, covered under the same umbrella insurance policy. If you do end up being covered through your management company’s master policy, you need to make sure that the policy has a per-location aggregate limit. This will provide separate limits to each building, and will avoid the limits to be exhausted from a claim at one of the other buildings.

Tenants Liability

Your management company should make sure that all tenants carry their own property and liability insurance. This will prevent any claims, arising due to the negligence of a tenant go against the landlord.

 

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Monsey, NY 10952
845-789-4433