Common Loss Assessment Insurance Coverage in Florda

Started by LoriM15 • 7 replies • 460 views

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LoriM15 (Florida)
Posts: 1,009

Posted:

I have found out some interesting information regarding part of the reason our insurance is so screwed up in Florida. It turns out that all individual condo insurance policies must, according to FS 627 (insurance) have "common loss assessment" insurance coverage of $2000 with a $250 deductible. That means that if the condo association does not have enough insurance to cover a common loss (like hurricane cleanup) then any special assessment to make up the difference will be paid, up to $2000, by the condo owner's insurance. Apparently most homeowner's insurance (for single family's) carries a $1000 worth of this coverage.

The reason this came up is that one our sub-associations PLANS on this insurance coverage to cover excess costs instead of putting money in reserves. The president of that sub association was proudly telling me that they will be having a special assessment but that insurance should cover it all.

All of our sub-assocations have reserves that are never fully funded. Whenever there are major projects there is almost always an special assessment. For example, they are all replacing their roofs because of damage from the LAST hurricane - they assigned their benefits to roofers and have been in the courts. But even though this has been going on for five years, they still don't have enough reserves to pay for the roofs, so they are planning on a special assessment when it finally happens. This is NOT the way we run the master association.

I was wondering if any other states have insurance coverage for excess common loss. Seems like a benefit for condo owners but an easy way for your insurance company to drop you after you make the claim.

AugustinD
Posts: 1,027

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Posted By LoriM15 on 10/20/2022 11:55 AM
I have found out some interesting information regarding part of the reason our insurance is so screwed up in Florida. It turns out that all individual condo insurance policies must, according to FS 627 (insurance) have "common loss assessment" insurance coverage of $2000 with a $250 deductible. That means that if the condo association does not have enough insurance to cover a common loss (like hurricane cleanup) then any special assessment to make up the difference will be paid, up to $2000, by the condo owner's insurance. Apparently most homeowner's insurance (for single family's) carries a $1000 worth of this coverage.

The reason this came up is that one our sub-associations PLANS on this insurance coverage to cover excess costs instead of putting money in reserves. The president of that sub association was proudly telling me that they will be having a special assessment but that insurance should cover it all.

I read FS 627.714 and see the statutory requirement for all insurance policies on Florida condo units to have at least $2000 of the coverage you describe (with $250 deductible).

I am not sure I understand your objection. Is your point that this sub-association is throwing out the whole purpose of reserves when it just counts on weather events, such that insurance kicks in, to pay for replacement of infrastructure?

Florida is certainly in an unusual situation these last 20 years or so, isn't it?

Many home insurance companies no longer will do business in Florida, correct? In fact Florida now has the state-run Citizens Property Insurance Corporation to help people with insurance, correct? I think said corporation represents one of the greatest, most ironic, and yes, doomed-to-fail marriages of socialism and capitalism that I think has ever existed in modern history. (This state-run insurance company is hopelessly capitalist based because the point is to make sure people keep building in Florida, isn't it? Enriching someone but no doubt not you nor me.)

Or maybe it's a contemporary, climate-change driven shell game of financing intented to shore up, for just a little while longer... what? The Florida economy? Florida housing in general?

Quote:

All of our sub-assocations have reserves that are never fully funded. Whenever there are major projects there is almost always an special assessment. For example, they are all replacing their roofs because of damage from the LAST hurricane

I would not call these "projects." I would call them "insured events."

Quote:

- they assigned their benefits to roofers and have been in the courts. What's the dispute about? But even though this has been going on for five years, they still don't have enough reserves to pay for the roofs, so they are planning on a special assessment when it finally happens. This is NOT the way we run the master association.

Is your problem with all this that long delays occur by counting on insurance to pay for infrastructure damaged by weather events?

It seems to me that how business is done in Florida is going to be nothing like pre-2000 practices and will, of necessity and practicality, tend towards short-sightedness. Because next year (next month?) there may be another hurricane to destroy all the roofs. If a person must live in Florida, this makes sense and cents to me.

AugustinD
Posts: 1,027

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Posted By AugustinD on 10/20/2022 12:56 PM
In fact Florida now has the state-run Citizens Property Insurance Corporation to help people with insurance, correct? I think said corporation represents one of the greatest, most ironic, and yes, doomed-to-fail marriages of socialism and capitalism that I think has ever existed in modern history.

From this state-run corporation's web site:

About Citizens
Citizens was created by the Florida Legislature in August 2002 as a not-for-profit, tax-exempt, government entity to provide property insurance to eligible Florida property owners unable to find insurance coverage in the private market. Citizens is funded by policyholder premiums; however, Florida law also requires that Citizens levy assessments on most Florida policyholders if it experiences a deficit in the wake of a particularly devastating storm or series of storms. [AugustinD snicker]

Citizens operates according to statutory requirements established by the Florida Legislature and is governed by a Board of Governors. The board administers a Plan of Operation approved by the Florida Financial Services Commission, an oversight panel made up of the Governor, Chief Financial Officer, Attorney General and Commissioner of Agriculture.

MichaelS56 (Minnesota)
Posts: 859

Posted:

Today, an article came out from the State of Florida insurance company indicating that the insurance will be going up 20 - 30%. The governor will be calling another special session to tackle the state insurance failures.

CathyA3 (Ohio)
Posts: 6,299

Posted:

I think this does raise an interesting question. With "100 year" and "500 year" events happening more frequently, it's entirely possible that replacement of major components will result from insured events and not from the normal end of the components' useful life.

This definitely will affect how reserves are assessed. Your 25-year shingles will most likely be replaced before then - if not from a hurricane, then from faster aging due to more frequent severe storms.

I don't 100% agree with the sub-association president's take on this, but I do think he's right about what's happening. It's one of the reasons that insurance premiums have been increasing so dramatically.

The sub-association's board should be interviewing the companies that do reserve studies to see how they're accounting for this change in weather patterns. They should also keep their eyes on the insurance market, because that industry is also well aware of what's going on. It's possible that in the future, reserve requirements in some parts of the country *may* decrease, with that decrease offset by much higher insurance costs. On the other hand, having more wear and tear from more frequent "100 year" storms will shorten the useful life of components in parts of the country that don't get hit by hurricanes and thus increase reserve requirements.

It certainly makes the boards' job harder in HOAs/COAs.

AugustinD
Posts: 1,027

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Posted By MichaelS56 on 10/21/2022 4:50 AM
Today, an article came out from the State of Florida insurance company indicating that the insurance will be going up 20 - 30%. The governor will be calling another special session to tackle the state insurance failures.

Highlights from an article dated yesterday:

-- In 18 days, Florida's Governor will either be re-elected or thrown out of office.

-- Florida will hold a special legislative session before the end of the year to address the 'insurance crisis.' This will be the fourth special session this year. The last time four special sessions occurred was in 2007? Not sure. [Normally the Florida legislature meets 60 days each year, from mid-January to mid-March.]

-- The governor said the Legislature will provide property tax rebates to areas affected by the catastrophic storm.

-- “It costs way more to replace a roof today than it did just three years ago,” DeSantis said. “So we need to do everything we can to push back on that and fight for a more competitive market where rates are incentivized to go down.”

-- Florida has seen private insurers either collapse or scale back their coverage options in recent years while the state-created Citizens Insurance, which was designed to be an insurer of last resort, has ballooned in size. Citizens now has more than 1 million policyholders.

-- The Republican-controlled Legislature held a special session in May in which the state agreed to use taxpayer money to add a $2 billion layer of reinsurance for private insurers.

More at https://www.politico.com/news/2022/10/20/desantis-says-special-session-coming-on-property-insurance-00062777

AugustinD
Posts: 1,027

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Posted By CathyA3 on 10/21/2022 6:30 AM
The sub-association's board should be interviewing the companies that do reserve studies to see how they're accounting for this change in weather patterns. They should also keep their eyes on the insurance market, because that industry is also well aware of what's going on. It's possible that in the future, reserve requirements in some parts of the country *may* decrease, with that decrease offset by much higher insurance costs. On the other hand, having more wear and tear from more frequent "100 year" storms will shorten the useful life of components in parts of the country that don't get hit by hurricanes and thus increase reserve requirements.

I agree with the points made above.

For infrastructure, the two main financial effects of more severe weather seem to me to be:

1. More severe weather can reduce the expected life of infrastructure.
Adjusting reserve studies (and so reserve contributions) annually can take this into account. I would say association boards en masse are not currently in the mode of paying much attention to reserve studies. Because of 'weather patterns,' attention to reserve studies seems to be increasing.

2. More severe weather can result in an insurable event.
Whence insurance pays for the replacement, and the "useful life" clock in the reserve study gets reset. All other things equal, the amount that owners pay to reserves will decline, because insurance has paid for what the reserves might normally pay. Meanwhile, the cost of insurance will rise. Will the insurance increase cancel out the reduction in reserve contributions that occurs? I would expect so, because insurance aims to make all policy holders pay (even the policy holders that do not have an insurable event). In other words, if one wants peace of mind, participating in the cooperative/collective aspect that insurance is has value. In Florida the government, having socialized insurance with its own state run insurer, seems poised to bill all Florida residents through tax increases. Once again, I think this will tend to yield owners having to contribute less to reserve funding, while paying more for insurance, with the net result being a benefit to condo owners in particular.

I think anyone who thinks Florida developers are not doing the math here is in la la land. Build build build. Or should one say, "Rebuild, rebuild rebuild"?

AugustinD
Posts: 1,027

Posted:

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Posted By AugustinD on 10/21/2022 7:12 AM
Will the insurance increase cancel out the reduction in reserve contributions that occurs? I would expect so, because insurance aims to make all policy holders pay (even the policy holders that do not have an insurable event).

Post-o. That should be, "I would expect not... "

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