Insurance

What Impact Does Leasing Have on an Association’s Insurance?

The percentage of renters is increasing nationally, and our area leads the country in this statistic. A 2014 poll by the National Multifamily Housing Council found that 42% of households in the D.C. area are renting, second only to New York at 51%. Many factors contribute to this statistic, but the area’s transient economy lends itself to this type of living arrangement.

Moreover, 51% of people living in rental housing arrangements are under 30 years of age. Possibly more importantly, only 41% of the renters surveyed said they had obtained renters insurance. Therefore, the necessity of educating millennials on insurance matters is critical to the financial well-being of our communities, especially since trends are indicating a continual decrease in home ownership. If renters understand what is required of them from an insurance and governing document standpoint, the better off associations will be at controlling their insurance costs long-term.

Bottom line—insurance carriers are aware that this region has a higher renter percentage than the national average and their concern regarding the negative impact this can have from a claims perspective plays a large part in the underwriting process. Insurance carriers collect and analyze claims data from across the country as part of their actuarial research, and they have come to a consensus that as rental occupancies increase, the likelihood of claims increases.

How do these facts surrounding high percentages of renters impact an association’s insurance program, and what can an association do to effectively control its community’s long-term costs while maintaining a friendly, hostile-free living environment?

We recommend associations implement the following suggestions to effectively identify and solve the challenges of managing a community with high renter occupancies.

  1. Require all tenants purchase a renter’s insurance policy (HO–4) with required/recommended insurance coverages/limits. Adopting a lease agreement is also highly encouraged. Many governing documents grant associations the ability to subrogate against tenants, so if the tenant is found to be responsible for a claim that impacts common elements and/or other units, we recommend notifying the master insurance carrier of this circumstance. There is a high probability that most tenants will be millennials, and since millennials are between the ages of 18 and 34, their education and experience level when it comes to purchasing insurance is probably limited. In short, it would be wise to have your insurance broker meet with association members to educate them on the importance and affordability of any recommended/required insurance programs. The typical homeowner’s insurance policy is very affordable, with annual premiums ranging from $150–$350.
  2. Require homeowners to purchase an insurance policy (HO–6) with required/recommended insurance coverages/limits. In many cases, this could serve as a secondary insurance solution in case the renter’s insurance is found to be inadequate.
  3. Notify all new residents (homeowners and renters) of any requirements in place when hiring contractors to perform work within units (obtain proof of insurance, permits, licenses, etc.) This will help avoid costly claims and will also provide grounds for subrogation if the contractor causes an issue.
  4. Keep accurate owner and tenant information, including the percentage of renters. Start with a survey and monitor occupancy trends moving forward. With accurate information, you can develop policies and procedures tailored to the actual demographic. Furthermore, providing more accurate information to insurance carriers during the bidding process typically leads to more competitive terms.
  5. Invite your insurance broker to attend board meetings to discuss the importance of obtaining and maintaining homeowners and/or renters insurance policies. Your broker should be discussing why insurance is important, what each policy typically covers, and how this will help the association control long-term costs. This effort should increase homeowner participation, which will, in turn, better protect the association from unintended claims.
  6. Work with your insurance broker on exploring the most cost-effective insurance solutions based on your community’s unique demographics. Working with an experienced broker who also has access to multiple carriers is highly recommended to obtain the broadest possible coverage at the lowest possible price point.

 

By Andrew Schlaffer

Andrew is a vice president in USI’s DC Metro and Hunt Valley regional offices. He joined the USI team in June 2017 and is a licensed property and casualty insurance agent and consultant in Virginia, Maryland, and the District of Columbia. Andrew has a background in providing customized insurance and risk management solutions to community associations as well as other related industries. He serves on several Chapter committees for both the Washington Metropolitan and Chesapeake Region Chapters of CAI.

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