By Tressa Bishop, MBA, CIC, CIRMS®, Alliant Insurance Services
Four or five years ago, insurance budgets for community associations were easy to estimate by adding a percentage range increase provided by their insurance broker. When property markets took a turn in 2019-2020, for many this method of budgeting resulted in the insurance budget being completely busted once it came time to renew the policies.
Insurance renewal dates for communities vary. The main reason is because the annual policy effective dates began when the community was first developed and the insurance program established as required by the governing documents. With the majority of associations having a fiscal year that does not match the annual policy effective dates, the budgeting process has become somewhat of a WAG (wild “ahem” guess).
After a year or two of this ‘Guess Miss the mark Adjust the budget or special assess’ cycle, Boards began asking to move policy effective dates to line up with their community’s fiscal year for budget ratification purposes. With January 1st being a very common start to a fiscal year, carriers were asked to change association policy effective dates to January 1. This was accomplished in one of two ways: through a short-term policy being written (ex. June 1 through January 1), or a cancel-rewrite in the middle of the current policy term.
While there could be some benefit to changing the insurance effective dates to meet budgetary needs, it does not always make sense to do so.
Weighing the Pros and Cons
Pros of moving the effective dates:
- One and done budgeting for insurance purposes.
- Members know what to expect for the year and their monthly assessments are not further impacted by rate fluctuations and carrier appetite changes mid-term.
- Carriers may have minimum premiums required to write the business and the total overall insurance expense for a short-term policy (to line up the dates the first year of the change) may be higher than an annual premium.
- Mid-term rate changes may result in losing the lower rate currently in place (cancel-rewrite situation).
- Late renewal quotes/proposals for those seeking a January 1 effective date. The majority of reinsurance treaty (agreements) renewals occur January 1 which means carriers may be reluctant to provide quotes until they know the cost of their reinsurance. This could mean Boards are voting on insurance during the holidays or all the way up to the last few days of December.
- Underwriter workflow capacity during the traditional association budget season may result in unnecessary declinations or delays in obtaining renewal quotes. Underwriters are humans with a workload and a workweek. This is not AI quoting through an online platform where a quote is provided within 15 minutes.
- 90 days before renewal date – Initial premium estimates provided by insurance coverage line (ex. Property, General Liability, Directors & Officers Liability, etc.).
- 60 days before renewal date – Further refinement/update on premium estimates, along with carrier/market responses.
- 45 days before renewal – Further refinement/update on premium estimates, along with additional carrier/market responses.
- 30 days before renewal – Proposal is provided for any/all coverage lines where solid quotes have been received, along with “placeholder” information/premium estimates included for other coverage lines where quotes have not been received.
- Weekly updates and a final proposal provided as soon as all lines of coverage have been quoted and negotiated.
{Potential} Cons of moving the effective dates:
How can Boards more effectively budget for the unknown?
Use an insurance broker who specializes in the community association niche of the property market and has sufficient volume within the niche to see first-hand real-time rate changes for similar communities. Consider a broker selection process five-to-six months before the renewal date and check Board references (current and past clients) as part of this process.
Hold a mid-year market briefing with your community’s specialized broker to obtain specific rate trends/information related to your specific type of community.
Do not simply guess on the budget line item for insurance without the input and guidance from your broker.
Agree upon a communication/marketing update schedule with your broker so the Board is kept up to speed as the renewal date gets closer. This may look something like the following:
Communication is the biggest factor when budgeting for the unknown. Do not operate in a vacuum.
Tressa Bishop is an experienced commercial insurance broker with Alliant Insurance Services who has specialized solely in community association insurance for the past 10 years. She leverages an exceptional knowledge of the markets, policy forms, and underwriting processes to benefit her clients.
