Toolkit for Homeowners and HOAs on Insurance - Information and FAQs

• Actual Cash Value - Pays out claims based on the replacement cost of your home or possessions minus depreciation. It represents the actual value of the item at the time of the loss.
• Additional Living Expenses (ALE) - Covers the extra costs of living away from your home if you cannot live there due to damage from an insured disaster. It includes hotel bills, restaurant meals, and other living expenses incurred while your home is being repaired.
• Agent vs. Adjuster - An agent is a company representative that assists consumers with establishing new policies and making changes to existing policies coverage.  A staff or independent adjuster works for the company and is responsible for inspecting, investigating and determining coverage owed in claims.  
• Deductible - An amount of out-of-pocket money the policyholder pays before the insurance pays for a claim.
• Defensible Space - An area or buffer around a structure that has been designed to minimize risk from a fire. 
• Depreciation - The decrease in the value of property due to wear and tear or age. In insurance, it's important for determining the actual cash value of an item at the time of loss.
• Dwelling Coverage - Covers the physical structure of your home and attached structures. It can help pay for repairs or rebuilding if your home is damaged by covered risks like fire or storms.
• Endorsement/Rider - An addition to an insurance policy that changes or adds to the policy's coverage or terms.
• Exclusion - Specific risks or situations that are not covered by the insurance policy. Understanding exclusions is crucial as it outlines what is not protected by your policy.
• Extended Replacement Cost - An addition to your homeowners insurance policy (also called an “endorsement”) that can extend the coverage of your dwelling by a percentage of the cost to rebuild your home. 
• Full-Coverage - This term should be avoided. What may be interpreted as “full coverage” for one consumer may not meet the needs of another. All insurance policies have differing options when selecting deductible amounts, coverage limits, and endorsements/ optional coverages. Each part of a policy should be carefully reviewed and selected based on your individual needs. Working with an insurance agent or broker can help you with making selections that meet your individual insurance needs.  
• Home Hardening - The use of building materials, defensible space and mitigation efforts to increase the fire resistance of a structure. 
• Law and Ordinance Coverage (also known as building codes coverage) - Covers the costs to bring a home up to current building standards and requirements after a claim.
• Liability Coverage - Protects you in case someone is injured or their property is damaged and you are to blame. It can cover legal fees and the injured party's compensation.
• Market Value - The current value of your home, including the land, based on what it would sell for on the open market. It's different from the replacement cost, which is the amount needed to rebuild the home at current prices without considering the land value.
• Mitigation - To minimize danger or risk on a property.
• Non-Admitted / Surplus Lines Market - Non-admitted companies do not have to meet state regulations and requirements like admitted companies do (admitted companies are the traditional insurance companies). However, non-admitted companies are more willing to provide coverage for higher-risk properties and situations. 
• Personal Injury Coverage - This is a component of liability insurance within property insurance policies that protects against claims for non-physical injuries caused to others like harm to a person's reputation, rights, or mental well-being.
• Personal Property Coverage - Protects the items inside your home, such as furniture, electronics, and clothing, against theft, damage, or loss.
• Premium - The amount you pay for your insurance policy.
• Reinsurance - Insurance for the insurance companies. 
• Replacement Cost - Refers to the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation.
• Underwriting - The process by which insurers evaluate the risk of insuring a home or individual and decide the premium and terms of coverage.

Colorado Division of Insurance Regulatory Work
The Division of Insurance (DOI) regulates insurance in Colorado, meaning the insurance companies as well as the insurance agents. The DOI reviews what the insurance companies file with us - plans and premiums. We review to make sure that the premiums are actuarially supported. The DOI also investigates consumers’ complaints, as well as answers various inquiries and questions that may not rise to the level of a complaint.

FAIR Plan Implementation

• The Fair Access to Insurance Requirements (FAIR) Plan is a program designed to provide property insurance coverage for homeowners and businesses when coverage is unavailable through traditional means. 
• HB23-1288, establishing the FAIR Plan, was passed by the legislature and then signed into law by the Governor on May 12, 2023. 
• Given the increasing frequency of natural disasters in our state, the FAIR Plan was developed to address the growing need for accessible property insurance. It represents a collaborative effort between the State and the insurance industry to provide a viable solution for Coloradans struggling to find coverage through the standard market​​.
• We're pleased to announce that the FAIR Plan is set to commence in early 2025.
• For the latest information and updates on the FAIR Plan, please visit the Colorado FAIR Plan website.

Colorado Legislature and Legislation
In 2023, the passage of two pieces of legislation, HB23-1174 and HB23-1288, marked significant progress. These bills are instrumental in studying and implementing strategies to make insurance more affordable and in establishing a plan of last resort (the FAIR Plan) for property insurance.

Additionally, HB24-1108 is currently being reviewed by legislators. If passed, it will authorize the Commissioner to research these concerns as well as come up with recommendations.
You can always search for any insurance-related legislation (past or current) using the Colorado Legislature’s website - leg.colorado.gov (click on “Find a Bill”).

Stakeholder Meetings
In Fall 2023, the Division held a series of stakeholder meetings to better understand the landscape of our current insurance market. These meetings were an important step in gathering insights from policyholders, insurance providers, and other stakeholders. You can review the discussions and outcomes of these meetings at our Homeowners Insurance Affordability and Accessibility website.

Professional Independent Insurance Agents of Colorado (PIIAC)  

PIIAC is a state trade association for Independent Insurance Agents in Colorado who may have additional resources and can help navigate your unique situation. Please complete this “Consumer Home Inquiry Form” from PIIAC to submit an inquiry.

Colorado Division of Insurance

• Consumer Services Support - If you have concerns about your current insurance carrier’s practices, our consumer services team is ready to assist. You can reach them at 303-894-7490, Option 3, and if needed, file a complaint through the Division’s website - doi.colorado.gov (click on “File a Complaint”).
• Insurance Premium Report - To assist you in understanding and comparing current insurance rates, we encourage you to utilize our Homeowners Insurance Premiums Report. This tool serves as a valuable starting point for comparing premiums from different insurers to identify a rate that aligns with your financial capabilities.
• Review DOI Stakeholder Meetings - Stakeholder meetings on "Homeowners Insurance Issues of Affordability and Accessibility" finished November 2023. These meetings were an important step in gathering insights from policyholders, insurance providers, and other stakeholders. You can review the discussions and outcomes of these meetings at our Homeowners Insurance Affordability and Accessibility website.
• Email Updates - To stay updated on our initiatives and receive future invitations to relevant events, the DOI encourages you to sign up for our email updates at doi.colorado.gov (scroll to the bottom of the page and under “Quick Links” click on “Sign up for DOI Emails.”
   

Homeowners Insurance

Several factors may contribute to increases in property insurance premiums, even if your personal claims history remains unchanged.

Environmental Factors

• More Extreme Natural Disasters: Increased frequency and severity of natural disasters, including hurricanes, wildfires, and extreme weather events, have escalated claim payouts, necessitating higher insurance rates to cover losses and prepare for future disasters.
• Tightening Reinsurance Market: The global impact of climate change has intensified weather-related disasters, straining the reinsurance market as insurers face higher costs for purchasing reinsurance coverage.

Economic and Market Factors

• Economic Inflation and Rising Construction Costs: Inflation affects the overall economy, raising the costs of goods and services related to insurance. Specifically, the cost of rebuilding homes has surged, driven by inflation and the escalating complexity of building materials and home technologies. This requires higher dwelling coverage limits, leading to increased insurance rates.
• Labor and Material Shortages: The construction industry faces significant skilled labor shortages, exacerbating delays in construction and repair work, thereby increasing costs. Concurrently, the price of lumber and other materials has risen, further inflating the cost of rebuilding homes after a disaster.

Societal and Behavioral Factors

• Insurance Fraud: The prevalence of fraudulent claims across the industry contributes to higher premiums for all policyholders, as insurers seek to recoup losses from these deceptive practices.
• Regional Claims Trends: Local spikes in claims due to natural disasters, water damage, or theft elevate insurers' risk exposure, prompting them to increase premiums to mitigate this risk.
• Changes in Home's Risk Profile: Homes located in areas now considered higher risk due to changing weather patterns or those with changes in claims history may see premium increases. This adjustment reflects insurers' reassessment of risk in response to environmental changes and historical claims data.

Policyholder-Specific Factors

• Personal Claims History and Policy Changes: Individual claims history, adjustments in policy coverage, and modifications to the insured property can directly affect insurance premiums. Filing claims or making enhancements that increase a home's value or liability risk can lead to higher premiums.

Homeowners Association (HOA) Insurance

Several factors may contribute to increases in premiums.

• Tightening Reinsurance Market: As climate change has led to more disasters around the world, with increasing severity, the insurance that insurance companies buy - known as reinsurance - has become more difficult to get. 
• Insured-to-Value (ITV): Insurance companies are more insistent in requiring properties to be insured-to-value, meaning insured at a level reflecting rising property values. These assessments ensure that HOA properties are neither underinsured, which poses a risk in the event of a disaster, nor overinsured, which unnecessarily increases premium costs. However, regular insurance-to-value assessments can significantly impact insurance premiums and at a time when the insurance market is experiencing volatility due to increased risks from natural disasters and economic fluctuations.
• Claims: Given Colorado's geographic and climate diversity, HOAs in the state may face heightened risks of natural disaster-related damage. A history of frequent or severe claims can lead insurers to raise premiums for an HOA to offset the higher risk of future claims. This is particularly acute in areas like Colorado, where natural disasters such as wildfires, hail storms and floods are becoming more common due to climate change. Insurers may become hesitant to offer or renew policies for HOAs with a high claims history or in regions perceived as high-risk, like those prone to wildfires in Colorado. This can force HOAs into the non-admitted market (also called the surplus lines market), where coverage is more expensive and may offer less protection. 
• Wildfires: Multi-family homes, such as condominiums and townhouses, often share walls, roofs, and other structural elements. In the event of a wildfire, this can lead to rapid fire spread among units, resulting in extensive damage or total loss. A concern for insurance companies is the high risk of catastrophic losses from wildfires, especially in Colorado, where many communities are located in wildfire-prone areas. The potential for large-scale destruction is too much risk for some insurers to assume and  it makes it financially risky for insurers to offer coverage.
• Challenges of Rebuilding: There has been a downturn in building multifamily housing in Colorado and across the country so there are national trends as well as unique regional issues. Labor and material costs have increased and are typically higher in the mountain communities. Resources needed to get the materials to the specific location adds to those costs.
• National Trends and Regional Issues: Across the United States, there has been a noticeable downturn in the construction of multifamily housing. This decline is influenced by broader economic factors but is exacerbated in specific regions like Colorado, where unique geographical and environmental conditions present additional hurdles. The challenges are not uniform across the board; they vary significantly from one area to another, with mountain communities facing distinct obstacles that demand specialized solutions.
• Increased Labor and Material Costs: A significant factor contributing to the complexity of rebuilding efforts is the rise in labor and material costs. These increases are felt nationwide but are particularly pronounced in mountainous areas. The scarcity of skilled labor, combined with the logistical challenges of transporting materials to remote or difficult-to-access locations, leads to higher overall construction costs. This scenario is further complicated by the fact that each location may require different building standards or materials to address specific environmental concerns, such as snow load or wildfire resistance.
• Logistical Challenges in Mountain Communities: The geographical features of mountain communities add a layer of complexity to construction projects. The terrain can make access difficult, impacting not only the delivery of materials but also the day-to-day movement of labor forces. Additionally, weather conditions in these areas can be unpredictable and harsh, leading to delays and further increasing project costs. These factors necessitate careful planning and coordination to ensure that resources are used efficiently and projects are completed within reasonable timelines.
• Navigating Insurance Complexities: Rebuilding multifamily housing often involves dealing with multiple insurance carriers and stakeholders, each with their own interests and requirements. This can complicate the rebuilding process, as negotiations and claims processing may delay the start of construction or lead to disputes over coverage amounts and liability. The situation is particularly challenging in the wake of natural disasters when the demand for insurance payouts is high, and insurers are scrutinizing claims more closely.

• What is the estimated cost to rebuild the home? 
• What can I do to avoid damage in the first place (e.g., choice of roofing material, keeping temperature of home reasonable to avoid freezing pipes/water damage claims, wildfire defensible space around the home)
• Will increasing my deductible lower my premiums? But it’s also important to know what deductible can you afford when you have a claim?

• Extended replacement cost at 50% of Dwelling Coverage, if concerned about coverage in the event of a total loss. 
• Ordinance & Law coverage at 20% of Dwelling Coverage if home is older and your city/locality has updated building code requirements.
• Verify additional living expenses (ALE) coverage amount. If not already included in the policy, consider purchasing 24 months of ALE coverage. Many policies offer only 12 months, but State law requires that the companies offer you 24 months of coverage. 
• Floaters/endorsements for personal property that may not be covered to the fullest extent under a standard policy, including, but not limited to: electric bikes, jewelry, fine art/paintings, collectibles, firearms, etc.
• Service Line Coverage: This endorsement covers the cost of repairing or replacing damaged utility lines on your property, such as sewer pipes or power lines, which aren't typically covered under standard policies.
• Water Backup Coverage: Also known as sewer or sump pump backup coverage, this endorsement covers damages caused by the backup of sewers or drains, or overflows from a sump pump. It's an important addition given that such backups can lead to significant water damage inside your home
   

• Shop around with different insurers to compare rates.
• Ask your current insurer about available discounts (e.g., discounts for multi-policy bundles, home hardening discounts).
• Maintain and keep records for updates like roofing, heating/cooling systems, electrical, and plumbing.
• Check Reports for Accuracy 
  • Colorado law allows one free credit report annually. If the insurer is using a consumer report for underwriting or rating purposes, they must disclose and provide contact information for that consumer reporting company.
  • Consumer Reports: Verisk and LexisNexis
• Consider opting for a higher deductible.
• It's also advisable to review your insurance policy regularly to ensure it still meets your needs and that you understand the coverages you are or are not paying for.
• Utilize the Division's Buyer’s Guide for Homeowner Insurance to understand basic coverages. 
• Use websites like Risk Factor, Climate Check, and/or Free Home Risk to review potential claim risks at your home to mitigate against them for potential discounts and lessen your chance of claims.

Several factors may contribute to increases in property insurance premiums, even if your personal claims history remains unchanged.

Environmental Factors

• More Extreme Natural Disasters: Increased frequency and severity of natural disasters, including hurricanes, wildfires, and extreme weather events, have escalated claim payouts, necessitating higher insurance rates to cover losses and prepare for future disasters.
• Tightening Reinsurance Market: The global impact of climate change has intensified weather-related disasters, straining the reinsurance market as insurers face higher costs for purchasing reinsurance coverage.

Economic and Market Factors

• Economic Inflation and Rising Construction Costs: Inflation affects the overall economy, raising the costs of goods and services related to insurance. Specifically, the cost of rebuilding homes has surged, driven by inflation and the escalating complexity of building materials and home technologies. This requires higher dwelling coverage limits, leading to increased insurance rates.
• Labor and Material Shortages: The construction industry faces significant skilled labor shortages, exacerbating delays in construction and repair work, thereby increasing costs. Concurrently, the price of lumber and other materials has risen, further inflating the cost of rebuilding homes after a disaster.

Societal and Behavioral Factors

• Insurance Fraud: The prevalence of fraudulent claims across the industry contributes to higher premiums for all policyholders, as insurers seek to recoup losses from these deceptive practices.
• Regional Claims Trends: Local spikes in claims due to natural disasters, water damage, or theft elevate insurers' risk exposure, prompting them to increase premiums to mitigate this risk.
• Changes in Home's Risk Profile: Homes located in areas now considered higher risk due to changing weather patterns or those with changes in claims history may see premium increases. This adjustment reflects insurers' reassessment of risk in response to environmental changes and historical claims data.

Policyholder-Specific Factors

• Personal Claims History and Policy Changes: Individual claims history, adjustments in policy coverage, and modifications to the insured property can directly affect insurance premiums. Filing claims or making enhancements that increase a home's value or liability risk can lead to higher premiums.

Section 10-4-110.8, C.R.S. - This statute is about homeowner’s insurance and the following topics: prohibited and required practices; estimates of replacement value; additional living expense coverage; copies of policies; personal property contents coverage; inventory of personal property; requirements concerning total loss scenarios resulting from wildlife disasters; definitions; and rules.

Section 10-4-110.7, C.R.S. - This statute is about the cancellation or nonrenewal of homeowners insurance policies.

Division of Insurance Bulletin B-5.35 - Homeowners Right to Obtain Additional or Enhanced Coverage

• Conduct regular reviews of the HOA's master policy to identify any coverage gaps or necessary adjustments.
• Communicate changes in the HOA's insurance responsibilities to homeowners to ensure they adjust their personal insurance coverage accordingly. 
• Understand the implications of loss assessments and high deductibles on the HOA and individual homeowners.
• Guide homeowners on how to align their personal insurance coverage with the HOA's coverage to avoid underinsurance.

• Actual Cash Value: Pays out claims based on the replacement cost of your home or possessions minus depreciation. It represents the actual value of the item at the time of the loss.
• Aggregate Limit: The maximum an insurer will pay for covered losses during a policy term.
• Building Property or Common Area Coverage: Covers the repair or replacement of common property damaged by covered perils.
• Directors and Officers (D&O) Insurance: Provides liability coverage for HOA board members against lawsuits related to their duties.
• Endorsement/Rider: An addition to an insurance policy that changes or adds to the policy's coverage or terms.
• Exclusion: Specific risks or situations that are not covered by the insurance policy. Understanding exclusions is crucial as it outlines what is not protected by your policy.
• General Liability Coverage: Protects the HOA against claims for bodily injury or property damage that occur in common areas.
• Insurance to Value (ITV): A principle ensuring property insurance coverage is enough to cover the cost of replacing or rebuilding the insured property at current market rates, aiming to prevent underinsurance and reduce out-of-pocket expenses in a total loss scenario.
• Loss Assessment Coverage: Provides protection for individual homeowners against special assessments levied by the HOA for claim based major repairs or lawsuits.
• Master Policy: The main insurance policy held by an HOA that covers common areas and shared structures within the community.
• Non-Admitted / Surplus Lines Market: Non-admitted companies do not have to meet state regulations and requirements like admitted companies do (admitted companies are the traditional insurance companies). However, non-admitted companies are more willing to provide coverage for higher-risk properties and situations.
• Premium: The amount you pay for your insurance policy.
• Reinsurance: Insurance for the insurance companies.
• Replacement Cost: Refers to the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation.
• Underwriting: The process by which insurers evaluate the risk of insuring a home or individual and decide the premium and terms of coverage.

What are the different types of policies for HOAs?

• Master Policy: Covers common areas and buildings.
• General Liability Coverage: Protects against injury or damage claims in shared spaces.
• Directors and Officers (D&O) Insurance: Safeguards board members against lawsuits related to their duties.
• Fidelity Insurance (Crime Coverage): Protects against fraudulent activities by HOA employees or members.

What is an HOA's master insurance policy?

• An HOA's master policy provides coverage for common areas and the building's structure, including the roof, exterior walls, and possibly fixtures within units depending on the policy type (e.g., "all-in" or "bare walls-in").

What are the HOA's financial responsibilities under the master policy?

The HOA is responsible for insuring common areas and the building's structure. The policy might also cover fixtures in individual units depending on the policy type. HOA fees collected from homeowners fund this master policy.

How can the HOA ensure its master policy complements homeowners' personal policies?

The HOA should clearly communicate the coverage provided by the master policy to homeowners. This helps homeowners understand what they need to cover through their personal insurance policies.

What happens if there is damage to common areas or individual units?

Damage to common areas is typically covered by the HOA's master policy. Homeowners are responsible for damages within their units not covered by the master policy, which varies based on the policy type and the specifics of the damage. Homeowners may be responsible for the HOA’s deductible and any overages outside of the HOA’s master policy limits.

What are loss assessments in the context of an HOA?

Loss assessments occur when the HOA levies additional charges on homeowners to cover costs not fully insured by the master policy, such as deductibles or significant damages.

How do changes in the HOA's master policy affect homeowners?

When the HOA adjusts the master policy's coverage, it may shift the responsibility for certain parts of the property to homeowners. The HOA should inform homeowners of these changes so they can adjust their personal insurance coverage accordingly.

How can the HOA help ensure adequate coverage for individual homeowners?

• Annual Reviews: Encourage homeowners to compare their personal insurance policies with the HOA's master policy annually.
• Consultation: Recommend that homeowners consult with an insurance agent to ensure their coverage is aligned with the HOA's policy.
• Stay Informed: Keep homeowners informed about decisions and changes affecting insurance requirements to help them maintain adequate coverage.
   

What factors are contributing to the increase in HOA insurance premiums?

• Tightening Reinsurance Market: As climate change has led to more disasters around the world, with increasing severity, the insurance that insurance companies buy - known as reinsurance - has become more difficult to get. 
• Insured-to-Value (ITV): Insurance companies have been more insistent that properties be insured-to-value - meaning that insurance coverage is more aligned with the increasing value of the property. These assessments ensure that HOA properties are neither underinsured, which poses a risk in the event of a disaster, nor overinsured, which unnecessarily increases premium costs. However, regular insurance-to-value assessments can significantly impact insurance premiums, and come at a time when the insurance market is experiencing volatility due to increased risks from natural disasters and economic fluctuations.
• Claims: Given Colorado's geographic and climate diversity, HOAs in the state may face heightened risks of natural disaster-related damage. A history of frequent or severe claims can lead insurers to raise premiums for an HOA to offset the higher risk of future claims. This is particularly acute in areas like Colorado, where natural disasters such as wildfires, hail storms and floods are becoming more common due to climate change. Insurers may become hesitant to offer or renew policies for HOAs with a high claims history or in regions perceived as high-risk, like those prone to wildfires in Colorado. This can force HOAs into the non-admitted market (also called the surplus lines market), where coverage is more expensive and may offer less protection.
• Wildfires: Multi-family homes, such as condominiums and townhouses, often share walls, roofs, and other structural elements. In the event of a wildfire, this can lead to rapid fire spread among units, resulting in extensive damage or total loss. A concern for insurance companies is the high risk of catastrophic losses from wildfires, especially in Colorado, where many communities are located in wildfire-prone areas. The potential for large-scale destruction is too much risk for some insurers to assume and  it makes it financially risky for insurers to offer coverage.
• Challenges of Rebuilding: There has been a downturn in building multifamily housing in Colorado and across the country so there are national trends as well as unique regional issues. Labor and material costs have increased and are typically higher in the mountain communities. Resources needed to get the materials to the specific location adds to those costs.
• National Trends and Regional Issues: Across the United States, there has been a noticeable downturn in the construction of multifamily housing. This decline is influenced by broader economic factors but is exacerbated in specific regions like Colorado, where unique geographical and environmental conditions present additional hurdles. The challenges are not uniform across the board; they vary significantly from one area to another, with mountain communities facing distinct obstacles that demand specialized solutions.
• Increased Labor and Material Costs: A significant factor contributing to the complexity of rebuilding efforts is the rise in labor and material costs. These increases are felt nationwide but are particularly pronounced in mountainous areas. The scarcity of skilled labor, combined with the logistical challenges of transporting materials to remote or difficult-to-access locations, leads to higher overall construction costs. This scenario is further complicated by the fact that each location may require different building standards or materials to address specific environmental concerns, such as snow load or wildfire resistance.
• Logistical Challenges in Mountain Communities: The geographical features of mountain communities add a layer of complexity to construction projects. The terrain can make access difficult, impacting not only the delivery of materials but also the day-to-day movement of labor forces. Additionally, weather conditions in these areas can be unpredictable and harsh, leading to delays and further increasing project costs. These factors necessitate careful planning and coordination to ensure that resources are used efficiently and projects are completed within reasonable timelines.
• Navigating Insurance Complexities: Rebuilding multifamily housing often involves dealing with multiple insurance carriers and stakeholders, each with their own interests and requirements. This can complicate the rebuilding process, as negotiations and claims processing may delay the start of construction or lead to disputes over coverage amounts and liability. The situation is particularly challenging in the wake of natural disasters when the demand for insurance payouts is high, and insurers are scrutinizing claims more closely.

What can our HOA do if we can't afford increased insurance premiums?

The property management company or HOA Board should work with their insurance broker to identify ways to reduce the premium.  This could include increased deductibles or reduced coverage.  However, the HOA is responsible for obtaining coverage that meets the requirements of the Covenant, Control & Restrictions (CC&Rs). If your current broker cannot assist you, consider contacting the Professional Independent Insurance Agents of Colorado to see if they can offer alternative strategies or insurers that might offer more affordable rates.

We're facing an exorbitant increase in insurance premiums, making it hard for people to sell or buy units. How can we manage this?

• Seek alternative insurance quotes and consult with professionals like the Professional Independent Insurance Agents of Colorado (PIIAC) by using this contact form. They may offer solutions or interventions to help manage such extreme increases.

Can we do anything to reduce our overall insurance costs in this hard market?

• Reevaluate Coverage: Streamline policies by removing unnecessary coverages and prioritizing risk mitigation efforts like using fire-resistant materials.
• Optimize Deductibles: Increase deductibles to reduce premiums, ensuring the higher costs are manageable.
• Explore Discounts: Inquire about discounts for loyalty, bundled policies, and security enhancements.
• Comparison Shop: Evaluate rates from different insurers for better deals.
• Maintenance and Upgrades: Conduct regular property maintenance and consider upgrades that reduce risk, potentially leading to lower insurance costs and making the property more attractive to insurers.

 What issues is the Colorado Division of Insurance (DOI) aware of regarding HOAs and insurance?

• Cost of Master policies is increasing by 200-500%, causing HOA dues to increase. Homeowners then struggle to afford the increased dues. 
• Policies are not being renewed as insurance companies pull back from the market.
• Insurers are limiting their underwriting to smaller risks, which disqualifies HOAs with higher property values from obtaining coverage within their guidelines.
• Deductibles increasing from 5% to 10%.
  • 10% deductible may be outside the scope of some traditional loans for the homeowners, making it difficult for them to buy and sell these properties
• HO6 policy (condo/townhome owners policy) concerns:
  • Not all HO6 policies offer loss assessment coverage up to the amounts now needed
  • Not all HO6 policies allow for loss assessment coverage to be increased outside of renewal
  • HO6 policies aren’t standardized for when loss assessment coverage takes place - it can happen either; at the time of the claim or at the time of assessment. This could leave HO6 policyholders with no coverage if a home is sold or the policyholder changes insurers.
• HOAs, in addition to being priced out of coverage, are struggling with premiums rising due to insurance companies becoming more stringent in requiring properties be insured-to-value, meaning having insurance coverage that keeps up with increasing property values. 

• Regularly review both your HO6 policy (condominium insurance) and the HOA's master policy for coverage gaps. 
• Adjust your coverage in response to changes in the HOA's coverage responsibilities.
• Consider loss assessments and potential high deductibles in your coverage decisions.

• Actual Cash Value: Pays out claims based on the replacement cost of your home or possessions minus depreciation. It represents the actual value of the item at the time of the loss.
• Endorsement/Rider: An addition to an insurance policy that changes or adds to the policy's coverage or terms.
• Exclusion: Specific risks or situations that are not covered by the insurance policy. Understanding exclusions is crucial as it outlines what is not protected by your policy.
• HO6 policy: An HO6 policy, or condominium insurance, covers condominium and co-op owners for personal property, liability, and certain parts of their unit not covered by the association's master policy. The HO6 policy typically insures the structure from the walls in. The extent of coverage may be determined by the HOA’s Covenants, Codes and Restrictions (CC&Rs). 
• Loss Assessment Coverage: Provides protection for individual homeowners against special assessments levied by the HOA for claim based major repairs or lawsuits.
• Master Policy: The main insurance policy held by an HOA that covers common areas and shared structures within the community.
• Non-Admitted / Surplus Lines Market: Non-admitted companies do not have to meet state regulations and requirements like admitted companies do (admitted companies are the traditional insurance companies). However, non-admitted companies are more willing to provide coverage for higher-risk properties and situations.
• Premium: The amount you pay for your insurance policy
• Reinsurance: Insurance for the insurance companies.
• Replacement Cost: Refers to the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation.
• Underwriting: The process by which insurers evaluate the risk of insuring a home or individual and decide the premium and terms of coverage.

What is an HO6 insurance policy?

An HO6 policy, or condominium insurance, covers condominium and co-op owners for personal property, liability, and certain parts of their unit not covered by the association's master policy. The HO6 policy typically insures the structure from the walls in. The extent of coverage may be determined by the HOA’s Covenants, Codes and Restrictions (CC&Rs). 

How does the HOA's master insurance policy work?

The HOA's master policy is written to insure the areas required by the CC&Rs. Typically it covers common areas and the building structures, including the roofs and exterior walls. Policies vary, with "all-in" covering fixtures within units, and "bare walls-in" covering only exterior and common areas. The HOA’s master policy also provides liability coverage in the common areas. 

What questions should an HOA member be asking their HOA board?

• Coverage Types and Limits: What types of insurance does the HOA carry, and what are the coverage limits? This helps you understand the scope of protection in place.
• Coverage Gaps: Are there any notable gaps in our current insurance coverage? Knowing this helps identify potential areas of risk.
• Unit vs. Common Area Coverage: How are individual units covered compared to common areas? This distinction clarifies what the master policy covers versus what you might need to insure personally.
• Claims Process: What is the process for filing a claim, and how are claims handled? Understanding this can prepare you for efficient action if damage occurs.
• Insurance Cost Impact: How do insurance costs affect our HOA fees? This question ties the cost of insurance back to your financial contributions as a member.
• Policy Review and Updates: How frequently is our insurance coverage reviewed and updated? Regular reviews ensure that the HOA's insurance keeps pace with current needs and values.
• Reserve Funds: How adequately funded are our reserves to cover potential insurance shortfalls or deductibles without requiring special assessments from homeowners?

What are my financial responsibilities under the HOA's master policy?

You're responsible for personal property, the parts of your unit not covered by the HOA's policy, personal liability, and any deductibles applicable for claims involving your unit.

Do I need to pay for the HOA's master insurance policy?

No. But while you don’t pay the premiums to the insurance company like you do with your HO6 policy, you are indirectly paying for the master insurance policy, as your HOA fees contribute to funding that policy. Understanding its coverage helps ensure you're not underinsured.
 

How do I ensure my HO6 policy complements the HOA's master policy?

Regularly review both policies to identify coverage gaps. Consulting an insurance agent can be beneficial.

What happens if there's damage to common areas or my unit?

The HOA's policy generally covers common area damages. Your HO6 policy  will provide coverage for damages within your unit per the terms of your policy contract and your HOA’s CC&R’s. 

What are loss assessments?

When the HOA charges extra to cover costs not fully covered by the master policy, like deductibles, repair of significant property damage, liability claims or money owed beyond policy limits.

Why review loss assessment coverage regularly?

HOAs may choose higher deductibles, affecting your potential liability. Review your coverage at policy renewal times to ensure it matches the master policy's terms and covers potential assessments.

If you change insurers between a covered loss date and the assessment date, verify the loss assessment coverage in both policies. Some companies pay loss assessments based on the date of loss (when the actual event occurred), while others pay based on the date of the assessment. Often, a change in policy can result in no coverage. Discuss your loss assessment coverage with your insurance agent. 

If you are purchasing loss assessment to help cover the HOA deductible, be sure your policy does not include a coverage cap. Many policies will limit coverage to $1,000 toward a deductible. Discuss coverage options with your company representative or insurance agent. 
 

How do changes in HOA coverage affect my HO6 policy?

If the HOA shifts responsibility for certain building parts (e.g., windows or roofs) to owners, you'll need to adjust your policy type or policy coverage to cover these items.

Example: Previously, your HOA's policy covered windows as part of the building exterior. Due to policy changes, windows are now the unit owner's responsibility. You'll need to talk with your company representative or agent to determine if you should increase your HO6 structure coverage to include windows to ensure you're protected against potential damages.

How can I ensure my coverage is sufficient?

• Annual Review: Compare your HO6 policy with the HOA's master policy annually.
• Consultation: Talk to an insurance agent about aligning your coverage with the HOA's changes.
• Stay Informed: Keep up with HOA decisions affecting insurance requirements.