What are your community's insurance obligations? How much insurance do you need? What types of coverage are available? What is the difference between subrogation and transfer of recovery rights? Whether you need to determine if your association has the proper coverage for today or are already considering new options, this report will help you through the process.
Risk Management: How Community Associations Protect Themselves, a companion guide, provides additional information on this topic.
Insurance is one of six components in the
CMCA Study Kit [M5134].
Contents
Chapter 1—The Insurance Industry
Size and Scope
Insurable Exposures
Types of Insurers
Financial Performance of Insurers
Insurance Regulation
Insurer Operations
Chapter 2—Insurance Contracts and Policies
Policies
Community Association Insurance Policies
Bidding and Evaluating Contracts
Chapter 3—Analyzing Insurance Requirements
Association Business Activities
Association Government Activities
Association Community Activities
Analyzing Legal Requirements
Chapter 4—Property Issues and Property Insurance
Insurable Replacement Cost
Interface between Units and Common Elements
Other Property Issues and Interests
Causes of Association Property Loss
Standard Conditions and Limitations
Property Insurance Coverages
Chapter 5—Liability Issues
Determining Value
Causes of Association Liability Loss
Standard Policy Exclusions
Liability Insurance Coverages
Chapter 6—Income Issues
Determining Values
Causes of Association Income Loss
Association Income Insurance Coverages
Personnel and Income Issues
Owner Insurance
Read the Introduction:
© Community Associations Press, a Division of Community Associations Institute. All rights reserved
Risk management is the process of making and carrying out decisions that minimize the adverse effects of accidental losses on the community association. An exposure to loss is the possibility of financial loss that the association may incur because of the occurrence of some event, activity, or peril. Risk management is a five-step decision-making process that:
Identifies exposures to loss.
Examines treatment techniques (control and financing).
Selects the best techniques.
Implements the techniques.
Monitors the techniques.
Carrying out these steps involves planning, leading, organizing, and controlling community association activities. Purchasing commercial insurance transfers some of the risk of loss to another party—the insurer. Insurance helps offset property, liability, net income, and personnel exposures to loss that all community associations face.
Commercial insurance is one of the most important components of a community association's risk management program. To help managers and boards fully understand insurance issues, this guide will explore three key areas:
Insurance terminology, in terms of coverages, policies, and practices
Association exposures to loss and insurance coverages
Risk management and the association insurance industry
The following four topics are an integral part of each of these areas:
Insurance industry and insurance
Community association industry
Types of community association insurance
Related community association insurance issues
When confronted with decisions concerning their commercial insurance program, association boards sometimes simply repurchase the old program. This guide will provide boards with the critical knowledge necessary to fulfill their legal requirements and fiduciary obligations by providing information to make informed decisions without merely repurchasing what's in place.
Key Points
Property and liability insurance can be divided into commercial and personal insurance. A community association purchases commercial insurance; a unit owner or homeowner in an association purchases personal insurance.
The insurance industry is highly regulated at the state level in terms of rates, policy forms, financial standards, and business practices.
Insurers, operating primarily through agents and brokers, offer a variety of property and liability coverages. Most are standardized, but some are designed for community associations.
Condominiums, cooperatives, and planned communities each function as a business, government, and community. Each function can lead to property, liability, net income, and personnel exposures to loss.
Legal obligations to develop a commercial insurance program flow from the association's governing documents and the need to comply with various statutes, agency mandates, and prudent business practices.
Developing an association's property insurance program depends on determining values and defining the interface between individual units and common areas and the responsibilities of each.
Insurance professionals can tailor coverages for most of the four primary loss exposures.
About the Authors
A graduate of Stanford University, Clifford J. Treese, CPCU, ARM, holds the Chartered Property Casualty Underwriter (CPCU) and Associate in Risk Management (ARM) designations. He has been active in CAI's professional management education programs, and has written numerous publications in the community association field. Currently, Treese is the Chief Operating Officer-Residential Division, Chaney, Brooks & Company, Honolulu, Hawaii. Treese is also a past president of CAI, the Illinois Chapter, and the CAI Research Foundation.
Katharine Rosenberry is a professor of law at California Western School of Law in San Diego, California. She is also a past president of CAI, a founding member of the CAI College of Community Association Lawyers, faculty member of the CAI Law Seminar, a member of the consulting group to the Restatement of Servitudes, and a member of the American College of Real Estate Lawyers.
