Typically, Condo Boards set their annual budgets well in advance and make them transparent to unit owners prior to the beginning of the new year. That budget usually includes an estimated amount for insurance based on the prior year with an average percentage of increase factored in.
While this strategy typically works out just fine, in recent years, Florida has been going through an insurance crisis of sorts, with rates increasing exponentially for those companies even willing to stay in the Sunshine State due to sky-rocketing storm-related claims and lawsuits.
Unfortunately, some insurance companies are hiking their rates up to double (and in come cases even more!) year-over-year, far outpacing anticipated annual increases. And, while the association dues are re-adjusted starting at the beginning of the calendar year, some community insurance policies renew mid-year, meaning a significant increase may not be communicated to the board until well after the year's budget has been established. At that point, the only thing the board can do is assess residents an even amount of the difference, or remove another expense from the year's planned budget. (Note: By Statute, Boards are not allowed to pull from community reserves to pay this difference.)
So for example, if a community budgets $100,000 for insurance at the beginning of the year, but that policy comes in at $150,000 upon renewal, the Board is left with no choice but to split the $50,000 difference between all residents through a special assessment and ask them to pay in agreed-to increments.
If you're an Association Board member or Property Manager and are running into a similar problem, it is important to have an insurance partner that is willing to be part of your owners meetings to help explain why this is happening and field questions from owners. We do this for our clients when needed and would be happy to assist you through this situation, if you are being faced with it.
The good news is that recently some Legislative changes went into effect in Florida that will help to stabilize the insurance market over the next 2-5 years (you can read our recent article about these legal changes here). And while it won't be an overnight adjustment, there is light the end of the tunnel.
So if you're part of a condo association that is facing a special assessment due to insurance increases, follow these steps:
- Ask your insurance agent to attend an owners meeting to explain what is going on
- If your agent is unable to attend, contact us and we would be happy to help guide you through this situation
- Be conservative when budgeting. The only thing worse than an assessment for insurance is back to back assessments for insurance.
- Lastly, contact our team or e-mail me if you have any questions.
Serving on a condo board is tough job. Let us help you with the insurance piece.
Kirk Ball, CIC is the Principal Agent & Owner at Wren Insurance