HOA Coverage

HOA Insurance Costs Are Spiraling

What goes up and never comes down?

Building age, for one thing, but recently many others have skyrocketed and don't seem to be coming back down anytime soon. The cost of insurance is near the top of that list. Most home and car owners are painfully aware that their premiums have jumped dramatically over the last couple of years. Wildfires, hail, freezes, severe thunderstorms, hurricanes, replacement costs and rising property values have driven home insurance prices up. Car insurance rates have leapt to reflect higher vehicle prices (moderating now), rising costs of repairs, and increased risks of accidents from sticky post-pandemic driving behaviors. It hasn't helped that some insurance carriers have retreated from certain markets, reducing capacity. Demand hasn't changed, so lower supply means higher prices even if there haven't been claims.

But what about the cost of insurance policies bought by homeowners associations and condominiums? Yep, you guessed it...UP!

The same property risks effecting home insurance rates (hail, fire, storms, etc.) also drive the cost of master policy rates. HOA property insurance is more expensive because repairs are costlier and more frequent, and the perceived risk of fire and severe weather damage is greater. Some insurance carriers, particularly in California, Florida and other coastal or fire-prone states, have bowed out of the market, leaving fewer remaining participants and costs that can take HOAs' breath away.

Who pays for HOA insurance? Homeowners!

HOAs set budgets to pay for expected expenses like landscaping, association manager fees, electricity, janitorial, and insurance. When expenses rise HOAs usually have two options: Increase HOA fees or charge a one-time special assessment. Most HOAs pass the higher cost on to owners through higher dues. Extreme circumstances sometimes lead HOAs to tap reserves to pay for insurance, or even levy a special assessment. These are risky, last-ditch solutions because insurance is an ongoing, re-occurring expense (unlike sporadic capital needs like roof replacements)

Up and up

HOA insurance costs have multiplied in many cases, even without claims. Some with claims have seen costs rise more than 5x! One Colorado HOA nearly doubled their monthly fees just to pay for the association's insurance, and they aren't alone. Many more are have resorted to onerous special assessments to ensure coverage.

Higher HOA fees are likely here to stay for a while

What comes next? Increases in insurance costs for HOAs and condos may moderate in the coming years, but it isn't likely that costs will fall soon. The spate of severe weather and storm damage in recent years has led insurers to recalibrate their models and it would take years of quiet to convince them that they are priced too high for the risk.