051 | Top HOA Insurance Claims Shaping the Industry

Robert Nordlund: 0:00

Hi everyone, I have a special announcement to make. As you know, the mission of our podcast is to affirm, inspire, and motivate HOA board members. One way we hope to do that is with the launch of our new board member merch store. As a gift to boards who are meeting online, we're offering dozens of free and fun zoom backgrounds, designed specifically with you in mind, we've provided a link to the new store in our show notes, please check it out.

Kevin Davis: 0:31

The increases are coming just because all in everything's increasing. You know, your your landscaper that put a new roof on, you know, the just to replace and repair things as has gotten more expensive. So if you continue to say, we are not increasing our reserves, we're not increasing our assessments, then you're going in the wrong direction. You're asking yourself for a problem in the future.

Announcer: HOA Insights: 0:58

Common Sense for Common Areas, exists to help all 2 million volunteer board members nationwide have the right information at the right time to make the right decisions for their future. This podcast is sponsored by for companies that care about board members, association insights and marketplace, association reserves, community financials, and Kevin Davis Insurance Services. You'll find links to their websites and social media in the show notes.

Robert Nordlund: 1:28

Hi, I'm Robert Nordlund. From Association Reserves.

Kevin Davis: 1:31

And I'm Kevin Davis of Kevin Davis Insurance Services. And this is HOA Insights where we promote common sense

Robert Nordlund: 1:37

for common areas. Well, welcome to episode number 51, where we'll be speaking with insurance expert and regular co host Kevin Davis, talking about the top claims that are shaping insurance and the cost of insurance and their community association industry. But before we get going, I want to encourage everyone to check out episode number 50, which was a great discussion with Noa Maizland one of minutes solutions on the key to preparing for and running effective board meetings. That episode was full of great tips that can help associations of all sizes and types all across the country. And if you want to catch prior episodes, you can listen to them our podcast website, www Hoainsights.org. Or watch from the podcast channel, our YouTube channel, where you can subscribe to the podcast from any of the most popular podcast platforms. Now as we regularly do, we're going to start this episode with an audience question. So if you have a hot topic, a crazy story, or question you'd like to have us address in an upcoming episode, leave us a comment on YouTube. Leave us a voicemail message at 805-203-3130 or send us an email at podcast@reservestudy.com. So Kevin, Fred from Connecticut asked the question. I've been listening to your podcast since the beginning. And I'm committed to doing a good job keeping our association well insured. But I'm finding it very challenging to keep up with all the new issues from rising insurance costs and how owners seem to be more depending demanding than ever before. Can you help? So Kevin, what do we tell Fred? Sure.

Kevin Davis: 3:14

Thanks a lot, Robert. And great to be back here. I love doing these podcasts with you. First of all, we have to congratulate Fred, on being committed and doing a great job. I mean, that is we don't say that enough. Rob, we don't give people the credit they deserve by just being committed doing a good job. Because that's the key. When we talk about rising insurance costs, they really are rising because I would say the lack of commitment or the exact opposite of commitment in the community association World Meeting this, the board directors have this as a job to do which is to maintain the property, collect assessments and enforce the rules with a note do one of those things. Then they get in trouble. They get sued. People complain people are upset. The key thing though, is the maintenance part of it. As long as they maintain a property and you're committed to maintain their property? Guess what happens? Your insurance rates that kind of stay stable? Because as an underwriter My job is to look at your association and see Are you maintaining it? Are you doing the job you should be doing? If you are I can apply credits to it. And so your rates can be a little bit lower than everybody else's?

Robert Nordlund: 4:24

Hey, let's not go beyond that. That's big stuff. So you're saying that it's not just a wring your hands? And oh, no, insurance costs are going up. You can be proactive, you can do things that will make your insurance rates let's say minimize, you can be on the good side of the curve by taking good care of your property. Is that what you're saying?

Kevin Davis: 4:48

Exactly. Now, there's certain insurance is for accidents. Okay, but things the unknown things as long as you can control the known things, guess what happens? We're looking So we have inspectors and they go out to your property, they're going to look and see, okay, as if the grass cut is the things blocking the signs. Okay, how's your roof? Look, these are things we take into consideration. And we go, Hmm, I'm not sure I want to insure this property not because that maintaining it correctly, because they're not maintaining correctly, guess what happens to the railing guess what happened to your garage doors? Guess what happened to the balconies, all the things that you do for a living? And in terms of reserve studies that you do we look at the same things and say, Are they well maintained? If they're well maintained, it's going to make a difference in your insurance rate,

Robert Nordlund: 5:33

I look at it because I'm looking at how old is it getting and when it's not well maintained, it's going to wear out faster, and it's going to net be more expensive, because they're replacing a fence at 12 years instead of 15 or 18 years. But you're looking at it because there's a tell tale of is this board doing all they can to minimize accidents to care for the property. And that's that's probably what you're looking at

Kevin Davis: 5:58

perfect I'm doing, we're doing the same thing. But I'm looking at the net result. If we don't do what you're saying to do, if we don't follow your direction, and that balcony is not repaired or roofs not repaired. It's going to leak and leak all over your expensive paintings. Yeah, nice picture and back to you. You gotta turn around one day, there'll be water all over that painting because of roof wasn't repaired. And that is gonna cost me the insurer money. Right.

Robert Nordlund: 6:22

Okay, good. I like that. So boards, just it just even to how Fred's started. I'm concerned. If you're concerned, if you're doing all the right things that stacks the odds in your favor? Yes,

Kevin Davis: 6:34

it does. Now, there's certain things are happening out there that that Fred's concerned about the lot of issues out there. But again, if you enforce the documents, maintain the property, you know, collect the assessments, and you do those three things, the likelihood of those other issues coming at you, yes, they are important. But what you're doing now is you're treating as a business and making business decisions. So now all of a sudden, if you're sued for failure to make that business decision, you have what's called the business judgment rule that you act in the best interest of the association, therefore, that lawsuit coming to you is not going to be as significant as it wouldn't be.

Robert Nordlund: 7:11

Right? It may not stick, it may bounce and go away. Exactly, exactly. Nothing I'm thinking about with what you're saying is that there are enough problems in this world today. As we're recording here, there's tension in Israel and Gaza, there's a boat that hit a bridge in Baltimore, this is an election year, there's enough things out there to worry about, and that could potentially unsettle this world that we live in. So if we're doing what we can, then we limit the uncertainties, and we limit those outside factors. Yeah.

Kevin Davis: 7:50

And one thing we should talk about too, is that these board has the ability to budget, they can budget correctly, and say, Guess what we know the insurance professional said our rates gonna go up 30%. So we know last year, we paid, you know,$10,000, so it goes up 30%. More. So that is $13,000. So now, so we know, we paid that much more in premium. So we can budget correctly, as opposed to saying that, well, guess what our assessments are not going to go up this year, because we want to maintain it and make everybody happy. So that same thing we've been hearing forever. Well,

Robert Nordlund: 8:26

your job as a board member, I hope I'm not stepping on your toes. But your job as a board member is not to make people happy, your job as a board member is to take care of the property and maintain the common areas.

Kevin Davis: 8:37

And by doing that, instead of being a third person reading crusade maybe only be a 20% rate increase, the increases are coming just because all in everything's increasing. You know, your your landscaper, that put a new roof on, you know, the just replace and repair things, as has gotten more expensive. So if you continue to say, we're not increasing our reserves, we're not increasing our assessments, then you're going in the wrong direction. You're asking yourself for a problem in the future.

Robert Nordlund: 9:07

Interesting. So the root cause the control that the board has actually points right back down to their budget. If they have the cash to take care of the property, they have the cash to knowing that everything is going up to pay the higher insurance rate, the higher pool service the higher landscape, janitorial, whatever it is, that is the fuel that's going to give you room to do what you need to do. So you're not saying we don't have the money, and then therefore you're saying okay, in your illustration, whatever the insurance was, I think you said$10,000 Then you're not limited to oh, we're gonna have to raise our deductible crazy amount to keep it within $10,000. Life is expensive. owning real estate is expensive, and

Kevin Davis: 9:53

that's another area that needs to be addressed to you're seeing higher deductibles for Water Damage for everything out software. So again, it goes back to maintenance, if you maintain it properly, when that water is now is leaking three or four or five different stories because somebody left their bathtub on, you know, because they want a phone and it is leaking through all these different floors. Guess what happens now? Now all of a sudden, you have to figure out, well, who's going to pay the damages? What's gonna happen, assurance that the deductible? So it goes back to maintenance? The answer, Fred, a you talked about you're committed to doing a good job is to maintain the property as well as you can, you know, if you maintain a property, what's going to happen is your insurance rates will stop going up, eventually a stock going up anyway. But do we want to ensure your association is your insurer and a safe association is worth insuring to me, you know, can I get enough money for it. And that's the problem we have. Now when we look at these associations, they're not being maintained, because again, they're older Robert, as a reserve study specialist, you see these buildings all the time that you know, off the bat that they're not being maintained properly. Yep, as a result, you know, something's going to happen, you know, that pipes gonna start leaking when somebody the expensive car and ruin their pay, and all of a sudden caused a loss, what we do all we see these things, just like you see these things, but you, what you're seeing is that as a net result, the value of the unit is going to diminish, you want to keep the value of the unit up, you'll keep people happy by budgeting reserving property, we have seen if you don't budget correctly, we're seeing disaster that's going to occur, that's going to we see worse, who makes it worse. So we're seeing that$1,000 correction in your garage, or 10 whatever this avoids that $30,000 When you're dripping water or somebody 50,000 or $80,000. Mercedes, yeah. Kevin,

Robert Nordlund: 11:43

I gotta tell you I was at a property must have been December or January. And I have started getting the heebie jeebies about being in underground garages for high rises. And this is a high rise. And I went into the underground garage in the multistory underground garage. And it was bright white, new paint, I could see structural supports on the vertical structural support. And I was like, I could feel my shoulders going down. I'm good here. And we just learned that they had spent after trying to point ours out, they'd spend a couple $100,000 on their garage structure, and it pays benefits. And if we're talking about in a real estate market, what in real estate, I hear about things that are buyer's markets and seller's market. So it sounds like here, at this point in time, what an association wants to do is look attractive, almost look like they want attract the insurance agent to make them think, yeah, I want insure you, you're a good risk, you're not a bad risk, that one down the street, they're the bad risk. They got an ugly garage, it's got pooling water in it a lot of bad things going on. You guys got it squared away. Yeah, I would love to be your insurance agent.

Kevin Davis: 13:02

And what happens as a result of that, guess what's gonna happen? Now all of a sudden, my competitors was right at two. So I'm gonna go back and say I want to get a discount on this thing. So now we have three or four competitors knocking on that one person's door and say, let me write your insurance, what they're charging, charging 10,000 Over 35 of a 3% rate increase, guess what, I can do it for 12,000 or a lot less than that, because I'm looking at it, as opposed to the one next door death rate that's getting that's$20,000 now, and I'm looking at and go do do I want to spend time and energy on this building? I can look out do it, I can make some money, but it's gonna be a headache for me, because I'd normally be getting a claim later on, because I could see that their railing is not secure enough, and they're gonna fall off something on trip and fall. And like you do you walk in these places. And you know, your spidey senses tingling, and I thought, Oh, they have issues here. You know, well, guess what? Insurance Brokers is standing. Oh, my spidey senses are tingling. I don't know if I really want us date. I'll give a quote. If I write it great. But if I don't, it's okay.

Robert Nordlund: 14:01

Yeah, if we get it fine. If we don't get it, no big deal. Hey, I like that idea that we can't stop the be economic forces in our world from affecting us. But we can harness them to our advantage. If we can take good care of the property, then we're going to do what we can to be a more attractive option and then we can invite competition and competition drops prices makes more attractive prices, all that kind of thing. I like not just throwing your arms up and saying oh, no insurance is going up. What was me? I like you know, you can spend a little bit of money take good care of the property. It means that the assessments need to go up a little bit. But that's life that we I think we have a new set it start operating like a business.

Kevin Davis: 14:52

That's it. That's the key thing, Robert, if they think of it as a business, what's our job to do we have to maintain with enhance replica Just crawl the environment here with a collect assessments we know we have to do, let's do our job. And if you do your job and you do it correctly, you have to worry about the demanding unit owners, you know, that you're worried about also you have people out that you worried about, you know, I'm not worried about the people who who are offended by my job that I'm doing. If I know I'm doing a good job, Robert, you go and they do these associations. And you know, you do a good job. So when somebody calls you up and yells and scream because you reserves that is inaccurate, or

Robert Nordlund: 15:31

are you listening on so my phone calls

Kevin Davis: 15:34

at a roof cost way too much money? You don't you're doing but you know who you are. And you know that what you bring to the table? And that's their problem? Is that your problem? And that's what we have to do? It's their problem, not your problem, because you're doing your job, because you're committed for it's that he's committed to doing a good job of keeping Association. Well, in short, yeah,

Robert Nordlund: 15:53

I like that. Well, Kevin, this is a good stopping point. We'll be right back after a quick break to hear from one of our sponsors, and pick up right where we left off.

Paige Daniels: 16:02

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Robert Nordlund: 16:34

And we're back. Well, Kevin, we spent the first part talking about Fred's question about what do I do? Can you address his second part of a question? What do I What do I do about the owners appearing to be more demanding than they've ever been before? How to how does that affect the shore?

Kevin Davis: 16:52

And this is a problem of all associations have right now, again, Fred, you do it, you're committed, you're doing a good job. That's key. And we said, if you do that, it takes care a lot of your issues right off the bat. But understand right now we live in a post COVID world. And a post COVID world means that at two o'clock in the afternoon, or

right now is 9: 17:11

30. Right? I'm sitting into my home, I'm looking at my window, and I'm seeing things there that I know, this is a I need to take care of myself, you know, before my wife tells me take care of it to do I need to do it myself. And it gets what I look at it every week at two o'clock or every day, at this time. As a man, I gotta take care of that thing. Now, guess what? My wife? She's okay with not doing it right now. But how long does it take before you're demanding you to notice say, Okay, I've been looking at this window. And I have still seen his tree not being trimmed correctly, is still stopping me from my shade. I want shade from this tree. And it's not being trimmed correctly. So that's what's happening. We are at home or Before, I used to be at work, nine to five. Now at 930 right now in the morning, and guess where I'm at? I am home looking at my window. Yeah, that's the problem. Yeah,

Robert Nordlund: 18:03

I'm a little distracted. Now. Because I'm thinking about two projects in my backyard I need to do before my wife says they go on the mandatory list, not just the when you have a moment list.

Kevin Davis: 18:14

But that's the world we live in. And now but a difference is okay, your wife was understanding and compassion to my wife is too. But guess what the unit order down the street, because we all have that one unit owner that will complain about everything that sits there and can't wait for you to leave your trash can out there for more than 48 hours. So they can complain because the trash can. But after 48 hours, you know, it does things you just haven't done that you should have done. And if people out there, this is constantly challenging the board's authority to handle the situation.

Robert Nordlund: 18:43

Now, well, my understanding is that in our post COVID world that triggered so many anxieties, and so we have normally people at home, but people at home being more anxious, more distrustful of authority, and that's created a situation where there are more claims, and therefore with more claims, the premiums gotta go up. And that's the environment that we're in. So what can what can Fred do to, as we've said, in the past, lower the temperature? Or does it come back to just taking care of the place having the budget to take care of the place? Is that where we keep coming back to?

Kevin Davis: 19:19

Let's go back and lower the temperature because first of all, if everybody is demanding, and I'm just as everybody else is okay, even though I know I'm I feel I'm committed, like Fred says committed to doing a good job. But all of a sudden, he's challenged because of all these new issues are out there. So Fred, first of all, understand you're committed and you're doing a good job because you're maintaining it. The property, you're collecting the assessments and enforcing the rules, okay, you're doing those three things that will get you out of most situations. Now, people have been more anxious now. But also people feel more entitled now than ever felt before. I've been in association with 20 years now. And I've been going to the gym at two o'clock in the afternoon every day. Now is that everybody want to go to gym at two o'clock because they're home, I think I should have prefer time, I'm going to do what I want to do. I'm going to park in visitors parking, I'm going to whatever you want to do.

Robert Nordlund: 20:10

And I'm usually on the treadmill at two o'clock and now they're on the treadmill at two o'clock.

Kevin Davis: 20:14

That's what's happening. And why do you think they have the privilege of being in Trenton? What I've been doing this for 10 years? I can't believe it. Now, guess what, that he's smoking out there and walking outside his cigarette butts outside, you know, what's going on with my association is coming apart, falling apart. And guess whose fault is this? That board member that board members is not doing his job correctly. We have a pickleball court now. I've never seen one of the pickleball courts, it makes too much noise what's going on? And the world we're living in right now. We have all this anxiety because we feel that we don't have control anymore. And we don't have control to somebody let's take it out on and new normally is that board of directors? They're the ones that we have to go back to? Yeah,

Robert Nordlund: 20:56

I think all across the country. Everyone listening to this is nodding their head saying yeah, I feel that Kevin, I feel that there's also this reality that in our world, there's more wildfires. There's more earthquakes, there's more storms, hurricanes achieve hurt hurricanes in Florida, there are more tragedies, more accidents. And so yes, the insurance costs are going to go up. So what can we do to try to have some control, and you keep coming back to saying lower the temperature with the people around you do your job. So in my family, we say be like a duck, let it roll off your back. So when you're doing your job, well, you don't take it personally, you know that you're doing your level best, and you're not in inclined to snap back and make the problem worse. And when you're taking good care of the property, then you're minimizing the things that can go wrong. So does it keep coming back to taking care of the things that are in your control? Yes.

Kevin Davis: 21:56

And what you control is minimizing the loss you can't there's no way you can say there's no way in the world we're going to have no losses. LME can do that is they nobody can drown if I don't have a swimming pool. Right? You can't drown. There's no pool, but we have a pool. So we want to do is minimize it by making sure the fence is secured. Now we have a fence but how many times the fence lock is broken or the latches broken, you know, we got to make sure that one little thing is secured on there. So now all of a sudden, the three year old or four year old, don't open up and walk in there and drown. Okay? Those are the little things that matter that you want to minimize the likelihood of a loss, just minimize it. By doing the best job you can, you can't stop it. You can't hold back to hurricanes. But there's certain things you can stop the maintenance art maintenance pieces of it, that one little thing when that gate, if it's if it latches when you close it, a little boy or little girl can open it up and walk in there. But what what happens, we don't do that we have a situation where we added a gate that opens and closes right. But the board said you know what, the gate is too slow to close people can come in here and now. So we want to make the gate close a little faster. So close faster. But what happens? You got some I have a walker that has gone through there and didn't walk enough and the person was was hurt seriously hurt because the gate closed and it closed this gate. Yeah, just whack them. And what happens is now because the board stepped up and did some they shouldn't have done. Now they're more maybe negligent than they were just by not doing anything. So they they created the accident by saying we made a decision to tweak that gate a little bit. Because we feel that as a board. Well, it's not your job to feel these things. Your job is to act on knowledge. And that's one of the things too, that people feel that this the right way and not know is the right way. You know, I feel that this is a good way. For example, I park in visitors parking because my grandmother there is handicapped and I got a handicap sticker. And I wouldn't walk it I wouldn't be able to use it. So I had to bait down the board that no I should be able to park there because I have a handicap sticker and visitors know if I can handicap parking, you know, but they believe they're entitled to do these things because they feel that they can do what they want to do, as opposed to what does the

Robert Nordlund: 24:18

document say? Yeah. And not just what the documents say. But also, I think you mentioned it the business judgment rule has a three part test and one of those is trying to gain counsel. So with that gate, rather than the board just saying, let's do it. Maybe they should ask maybe even the pool. The pool man, the pool man would say hey, I did that once over there and it was a bad thing. Keep it the way it is, trust me, whoever it is, go for wise counsel. And yes, we want to encourage boards to make decisions. We want to encourage boards to take good care of the property. But to be careful and do reach out at the right time. Contact your attorney contact your manager contact your landscaper Is it smart to add these kind have plants here, whatever it is,

Kevin Davis: 25:01

yeah. Because what happens, you add that plant and all of a sudden it grows and blocks that sign that says yield to pedestrians, you know, but these are the simple things that we think is a good idea because we feel it's a good idea. And all of a sudden, we come back later and find out that well, I guess we shouldn't have done that is one thing that pickleball courts, people love pickleball. But they now all of a sudden realize that loud noise it is, but you do get injuries in the safe. You know, I'm not saying don't do these things. But it's been formed, make an informed decision, which is part of the business judgment rule, make an informed decision act in the best interest of the association. Yeah,

Robert Nordlund: 25:36

I like that. And do be proactive do and isn't the first part of the business doesn't rule

Kevin Davis: 25:43

to care. Yes, quality of care, duty of care, duty of care.

Robert Nordlund: 25:47

So while we're between an insurance guy and a reserved a guy, we're talking about legal principles, and that dangerous.

Kevin Davis: 25:56

But before we talk about because we see what happens when they don't, you know, we're not saying we're not giving legal advice, we're saying, we see, if you don't have a duty to care, if you don't act in the best interest Association. What happens if you don't act the best interest sociation, you act to your own interests, guess what happens? Now all of a sudden, have a pool guy that I know, okay, I'm gonna bring him out here, because he's been handling my personal pool for 20 years and now moved into a condo with him do my, my pool? Well, there's nothing wrong with that, as long as you inform everybody that this will pool guy, do your due diligence, you know, verify his, what he's doing, and just inform everybody this what you know, he's a friend of mine, but he is good at what he does, you know, and and take a step back and let them make an informed decision. Nothing wrong with bringing people in and making changes, but laws that decisions inform the likelihood of a loss, because right now we're talking about claims, and we want to do is minimize the likelihood of a claim. That's all we can do. We can't stop them. We can't stop somebody from tripping and falling, but can't stop somebody from being upset with me when Sue me, by can minimize it by lowering the temperature, but fighting back with the demanding people by maintaining the property, you know, and budgeting, those are probably the three things that we really are important here to Fred, we just gave Fred some advice there, he's committed to doing a great job. But if you do those things, and sweat, it, things are gonna be a lot better.

Robert Nordlund: 27:21

You know, I like that. And that's probably a good place where we can bring this episode to a conclusion. So thank you, Kevin. As always, it's great talking with you. Any closing thoughts to add at this time, treated

Kevin Davis: 27:32

as a business, don't worry about a treat as a business. If you get sued, the likelihood of you again, you want to minimize a loss, likely of you having suffering damages will be a lot minimize by you just doing your job this little bit better

Robert Nordlund: 27:46

stack the odds on your side. Take the time, take the care, all those kinds of things. Well, wow, we hope you learned some HOA insights from our discussion today that helps you bring common sense to your common area. We look forward to having you join us for another great episode. Next week.

Announcer: 28:04

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