Robin Manougian: 0:00

Insurance Brokers like myself, we look at financials, what is the budget look like? Is the budget realistic? Are they putting away that 10% of their of their assessments toward reserves to pay down toward the rainy day problem that they they're going to have in the future? So there's so many things that a carrier is looking for, but really a healthy balance sheet is is one of the things a reserve study is something and are they keeping up with maintenance?

Jennifer Johnson: 0:33

HOA Insights is brought to you by five companies that care about board members, association, insights and marketplace Association, reserves, community financials, Hoa invest and Kevin Davis Insurance Services. You'll find links to their websites and social media in the show notes.

Kevin Davis: 0:49

Hi. I'm Kevin Davis, the president of Kevin Davis Insurance Services. And this is HOA Insights, where we promote common sense for common areas. Welcome to episode number 79 and I'm joined today by good friend and longtime business associate Robin Manougian of the Baldwin group. Robin, how you doing?

Robin Manougian: 1:08

I'm doing well. Kevin, thank you for having me.

Kevin Davis: 1:11

I'm glad you're here. We're gonna do something special today for all the board members and managers out there. We're gonna talk about taking control of your insurance. Well, we're gonna break down these myths and give you some tools or strategies where you can really take control of your insurance process and stop feeling like a victim, because right now, a lot of times, that's the feeling that you have. Yet you have no choice in the matter, and you do so Robin, tell us a little bit about yourself.

Robin Manougian: 1:41

Well, thanks, Kevin. So I've been in the in the insurance industry, specifically in community associations, for a very long time. I just hit 30 years, and I have seen all kinds of markets. I was a business owner, as you know, with my family, and then we sold our agency, and we're now with a very large corporation, the Baldwin group, so I've been able to see insurance from almost every side of the arena and all different kinds of markets, and the one we're in right now is really a doozy. Well, that's

Kevin Davis: 2:14

good, and we'll be talking about it. But before we get started, I want to encourage everyone to check out episode number 78 which was another popular board hero episode with board hero Sue York, someone I've known for quite a long time, and I really hope you enjoyed her talk. And if you wanna catch prior episodes, you can listen to them from our podcast website at WWW.HOAinsights.org, or watch them from our YouTube channel. Or you can subscribe to the podcast from any of the most popular podcast platforms. Also, if you have any hot topic, crazy story or a question you'd like us to address in an upcoming episode, leave us a comment on YouTube. Leave a voicemail message at 805-203-3130, or send us an email at podcast, at reserve study.com So Robin, too often we're told that rising costs are inevitable and there's nothing to do about it. But the reality is, is that you have more control of your insurance program than most people think. Is that true?

Unknown: 3:25

That is true. Kevin, I mean, we've we've got some things going on in the insurance climate right now that you really cannot change. And there are obviously conditions within your property that you can't change, things like zip code and whether you're near water, you know what, how old your property is, but there are definitely things that you can do to take control of your insurance so that you're not seeing those real huge spikes in our premiums. And right

Kevin Davis: 3:55

now, it's interesting, because the spikes have really been pretty bad over the past couple of years. How do we get here?

Unknown: 4:01

So, you know, obviously catastrophic loss, which we've been seeing for the past several years, is really impacting the insurance industry as a whole. Kevin, at this point, we're looking at global losses annually of about $100 billion recently, in the news. Now, we just saw hurricane Helene come through. That was probably a $34 billion event. We've got about 24 billion in property loss, and then you have to take into consideration another 8 billion in economic loss. There were areas hit incredibly hard that we're not prepared for it, and so, you know, you're seeing that catastrophic loss impacting both the insurance industry and really the willingness of carriers to want to remain in the market. We're looking at, you know, at the top of the hour, we talked about how. All the insurance industry has changed. So a lot of what has happened with a lot of board members is they've been caught off guard. So, you know, we had a very soft market going into 911 following 911 things changed for very obvious reasons. The market was fairly quick to recover, beginning in 2005 we saw a soft market condition begin. And that soft market remained up until about 2019 so anyone who was sitting on the board or who owned a home during that, you know, decade and a half, didn't know anything other than a soft market. And then we started seeing a lot of change, the combination of catastrophic loss, inflation, COVID, all of these things really took gave a battering to the insurance industry as a whole, and that's where we sit right now.

Kevin Davis: 5:56

Yeah, and it's interesting, because most people don't understand that for about 10 years, the rates were stable, they were consistent, they were stable, some even reduced. But now we're faced with an area where we have a lot of demand and not enough supply, and I think that's what you're hitting it there's there's people who want a good policy at a what they call a competitive rate, but because the markets are drying up, the idea of a competitive rate is just not there anymore, right? Well,

Robin Manougian: 6:28

the competitive is is really a term that is whatever is present now. So it was nothing for me to be able to, for many years, tell my clients, you're getting a 5% increase. And that was really a very good renewal. Some would say it was a high renewal. If they weren't having claims, you could maybe see a 3% increase. I would say that the days of a three or a 5% increase even on very healthy Association programs. And when I say healthy, I mean very few, if any, claims, those days are probably gone for a while, and it's because, for a very long time, those carriers were not getting enough rate, and the ones that didn't charge enough rate, they are going away. They are exiting the market. It's so that's putting tremendous pressure on the carriers that remain to really stay in business and be able to offer the kinds of premiums that are competitive in today's market. You can't think about yesterday's market. Yeah,

Kevin Davis: 7:34

Yeah, and that's it, but that's what the problem is, is that you hear you go to board meetings, right? Or I talk to the managers, and they say, Well, what happened? How do we get there? And do you have a really difficult challenge ahead, just explaining to them how we got there? Do they understand it? I guess that's the question. They really understand it. Well, we

Robin Manougian: 7:52

do at times, because, you know, let's, let's look at an area like where I'm from. I'm from the Washington, DC area, and hurricane Helene did nothing to my area, and yet, the associations that are in and around the DC area will definitely see some shift in premiums, probably as a result for Helene, the property carriers will probably be able to weather that storm, if you will. But it's the National Flood Insurance Program that I'm most concerned about. Periodically, we see that program temporarily go away. We wait for Congress to approve certain bill packages that will renew the National Flood Insurance Program. And so, you know, looking at those, are we underfunding those programs? That's a government sponsored entity. Where is that going to be in a few years time, if we continue to have these events, which, you know, are definitely hitting areas over and over and over again? I mean, Florida is a peninsula. It sticks out, and it is ripe for storms every time we have something brewing in the Atlantic, and with all of the warm water that we have in the Atlantic, we're looking at hurricane activity that is just increasing every year.

Kevin Davis: 9:18

Okay, I think what I can summarize what you're saying is that we're facing these uncertain times, and we talk about uncertainty, insurance carriers panic. I mean, I get I've been in insurance or a little longer than you have Robin, and say every time I turn around is that insurance carriers are panicking because they see something, and they like stability. They like calm. They like certainty. And what we've been seeing, you know, for the past five years, probably since, COVID, is nothing but uncertainty, climate change, COVID in general. So we're seeing a lot of different things out there that's probably panicking the carriers out there, and they really don't know what to do. And. So the only, the only tool they have is kind of raising rates. Well,

Robin Manougian: 10:03

raising rates, but also raising deductibles. So if you think about insurance as risk transfer, then think about a deductible as transferring back some of that risk onto the insured. And I'm really starting to see an uptick in increased deductibles, they're really looking to control loss and make make sure that they are there for the long haul. And that's the thing you want to as as an insured, to understand that the premiums that you're paying, the risks that you take on through increased deductibles, is helping ensure the longevity of those programs. That's what you want.

Kevin Davis: 10:46

Okay, all right, I explain it. Okay. So right now the boards out there and well, and we're telling them is that, listen, we're living in certain times that panics the insurers. So that means they raise deductible, they probably cut back coverage a little bit and they raise price. That means, as a board of directors, they have some choices to make in terms of, okay, how do they get the best deal possible? How can they really be be in control? Because it's really about empowering our boards right now, so that they get the opportunity and saying, Okay, we are a preferred association. So therefore we want to go to you, Robin, and say, Guess what? We are a preferred Association. We do these three things. And because we do these three things, I believe we should get a better rate. So let's kind of go into those three things. What would you say be the three things that they would need in order to really get a preferred rate? If the first of all, I guess the first question is, is there such a thing as a preferred rate?

Robin Manougian: 11:42

Well, there's a preferred rate if you are part of what a carrier looks like, as you know, what does that look like to a carrier? What it makes a risk favorable and one that's not so you know, there's things that you can't change. You can't change your the age of the property. You can't change the zip code, but there are things that you can change. And I would recommend that, if you if you're looking at long term things that you can do to your building, you know, think about those things that you can change. You can make sure that water heaters in all of the units are are not nearing or past their useful life. You know, a lot of boards tell me, Well, you know, Robin, we can't go into the units. We can't make these repairs. You can do things. You have to look at the bylaws of the association, the governing documents. You have to look at the condominium act. What is that right of entry? And then work with counsel if you don't have a real broad right of entry in your condominium act or your ccnrs, you want to develop something that will allow the board to go into the units when they know there is an issue that could give rise to a claim, anytime you've got a component in the unit that is aging and could result in certain loss, then that is a claim that's going on the loss history and makes a risk unfavorable. So Kevin, right now carriers are looking for an insured to have a loss ratio that's claims paid to premiums earned of no more than 35% that is a very low percentage. And so that starts not with hoping and praying that you don't have the claim. It comes with the things that you can do to control that loss. So you know, we mentioned the water heaters, steel braided hoses in washing machines are really, really a useful tool. Those don't burst as easily as the old rubber that can age. And you know, the developers tend to put in those rubber hoses, switch those out. It's about 100 bucks per unit. You could probably get a group rate on some sort of replacement of those hoses. And we really recommend doing that maintaining heat. So I can't tell you how many losses that we pay, because an owner simply went away for the winner and didn't leave the heat on. So you know, a lot of times the carrier will put these contingencies in the policy that we will pale pay a loss provided you maintain heat in the unit. So I'm recommending 55 degrees, 60 if you really want to be on the safe side, opening your cabinet doors when you're away, so that you make sure that heat gets underneath all of your sink cabinets. Clean your dryer vents so fires start in dryer vents that are all stuffed up and the air can no longer get through. A telltale sign that a dryer vent needs to be cleaned out is you stop being able to dry your clothes efficiently. So if the dryer doesn't seem to be working, the first place to check is to see if the dryer vent is clogged. Hydro, jet, pop you. Pipes. So especially in the high rise buildings, people tend to put things down their garbage disposal, down their toilets, down their sinks that should not be going down there. And then, you know, if you're not educating your owners, then you get, you get these sewer and drain backup claims very, very easily. So you can never educate enough. But when you when education is not working, hydro jet the pipes on a regular basis to make sure all of that that waste goes through pretty quickly, replace old pipes. So these old galvanized steel pipes underneath the very old buildings, especially in DC and probably old parts of LA and New York, they fail after a while, so I recommend replacing them and then a big one, Kevin, and then I'll take a breath and let you talk. But installing sprinklers. More than ever I am seeing carriers simply deem a risk ineligible if there is not a fully sprinkler building on on premises so that you can start out by sprinkling the garages. I really recommend that, but there are definitely things that you can do to make yourself more attractive to carriers and keep your premiums low. And that's a long list, but it's a very effective list.

Kevin Davis: 16:27

It's down. Look, you did something very well, and if I summarize it again, what you're saying number one is control the things you can control. You can't control your zip code. You can't control how high your building is. You can't control the weather, but you can control the maintenance issues. You can, you can look at your association and see that, okay, right now, that the railing in the stairwell is kind of a little bit of loose right there. So you have a choice. You can either a ignore it, like a lot of board members do, and don't use that stairwell anymore, or you can say, Okay, I'm gonna take the initiative and fix these stairwells. Another thing you said, too, which is important is education. It is, the more educated these board members are, the less likely a claim will occur, and so they will look like a preferred that when they come to you, they are one of the ones that are a preferred more a preferred carrier would look to because their association, who focus in on look, we understand that there's certain things we have the control over. But guess what? Listen, this is what we do have control over. Now, how do they let you know, Robin, as an insurance agent, that this is what they're doing? How can they tell you that?

Robin Manougian: 17:36

So you know, typically, when we go to work on renewal or we start talking to a new prospect, we want to know what they're doing. A reserve study is an excellent snapshot of all of the things that the association has done or will need to do in the future. A reserve study is an incredibly effective tool so that current board members and remember who board members are, they're volunteers. So they they rely on professionals to tell them what needs to be done, how long a component in the building is going to last. Those reserve studies will help them do to that, and we think they're such an effective tool to make sure that boards are reserving for the future, and so that we don't have the collapse of buildings like we saw in Surfside a few summers ago. Yeah, that's

Kevin Davis: 18:28

good. And I'm glad you mentioned the reserves, because, again, if I'm if I live in a homeowner association, and I walk to you as a Robin, I have a 50 unit Community Association, eight stories. And guess what? Here's my maintenance agreement that we, you know, we check every month, and here's my reserve study. Does that make us look like something that you would go, guess what? I can get a preferred rate. Yeah, as

Robin Manougian: 18:50

long as you're adhering to that. I mean, look, there's a number of questions on a master policy application, whether there's a reserve study, and whether they're funding that reserve study. Remember that insurance brokers like myself, we look at financials, what is the budget look like? Is the budget realistic? Are they putting away that 10% of their of their assessments toward reserves to pay down toward the rainy day problem that they they're going to have in the future. So there's so many things that a carrier is looking for, but really a healthy balance sheet is is one of the things. A reserve study is something and are they keeping up with maintenance? You can look at the reserve study and say, Well, you know, our our roof is going to need to be replaced in five years. But is somebody coming in there to look to see if that roof is actually deteriorating sooner? Waiting to replace something at the fail rate is probably not the way to go. And so boards need to be aware you may. Have on the reserve study that the roof is going to be replaced in five years, but you may have an event that causes that roof to deteriorate sooner. One thing I am starting to see among most carriers is if a roof is any older than 12 or 15 years, then they are insuring it on an actual cash value basis, meaning there's depreciation involved. I think a lot of associations are erroneously believe that if they let something fail, then insurance will pick up with the replacement. And it does not work like that.

Kevin Davis: 20:38

You know what? That's a really good point, because you get a lot of the board members and managers believe that their property policy is a maintenance policy, a maintenance contract. As soon as something goes wrong, they submit the claim and it doesn't pay. Talk about that for a few minutes. Yeah. So

Robin Manougian: 20:55

you know a good example I like to use is the failed water heater. So a water heater is a component in a unit that has a specific life span. Unfortunately, it doesn't give us a whole lot of signs when it when it's about to fail, and the typical water heater burst these days is anywhere from $8,000 to 250,000 depending on where the water heater is located. If it's in a high rise and it fails on the upper floor, then definitely I've paid those very large claims. And what owners don't seem to understand is insurance pays the resulting damage. It does not pay to replace the actual failed component. So the owner. And more and more I'm seeing in states and through governing document changes, the board is shifting deductible responsibility onto the unit owner in whose use in whose unit a loss originates, or the owner who benefits from insurance, but that insurance is still not going to pay to replace the failed aging hot water heater, so the owner is going to be on the hook for the deductible. Insurance will engage after the deductible is met, but the owner will still have to replace that component as a maintenance item.

Kevin Davis: 22:17

And that's the interesting part. Is that you have to have that maintenance contract. You have to have a maintenance agreement, something that you're looking at board members, so you can let the insurance people know that you are aware that you understand the importance of maintaining the association. Because you maintain it not only not going to have a lot of property claims, but you're not going to have a lot of liability claims. That's where your liability claims come from, from failure to maintain basically, you'd agree with that.

Robin Manougian: 22:45

I would so you know, it depends on who's maintaining something. So if you look in a set of governing documents, there's usually a provision about what the association's responsibilities are, what the owner's responsibilities are, and, yes, if there is a component that is failed, that the association has a responsibility to repair, replace, and they have not, particularly if owners have been giving them notice. Look, you know, I've got this, this leak in my unit. I know it's coming from our aging roof, then you could have a general liability claim that general liability policy is going to pay for bodily injury and damage to others property. All right,

Kevin Davis: 23:33

it's time for to take a break. Let's be back. Let's hear a quick word for one of our sponsors, and we'll be right back.

Paige Daniels: 23:43

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Kevin Davis: 24:14

And we're back. Thanks, Robin. And I thought, I think that was well done, and I think we gave the boards and the managers some good information, what they can do today. The question is, what does tomorrow look like? I mean, do we still see the rates going up? What is, what's your big fear right now? I guess that's my question for you.

Robin Manougian: 24:33

Well, my concern is that we are still in the middle of a very active hurricane season, so I was seeing a lot of recovery in the property market, particularly over the summer and and this one has this hurricane Helene has really kind of made carriers crawl back in their shell somewhat. I think there is some concern about. About, you know, global warming. What is that going to do? How do you price these policies? You know, we've got some some strikes right now in the shipping arena and those dock workers that is going to make the cost of goods go up. And that is probably going to start concerning our carriers to you know, when we work on a property policy, we have to take into consideration the overall replacement value of the components of the building, the building as a whole. You know, Hoa, property exposures, what are the costs of repair and replacement those I think, will probably continue to rise. We've seen a little bit of stabilization, but if we see things in the economy that start impacting those repair and replacement costs, the actual cost of building materials, we may see increased valuation changes when it comes time for renewal. So all insured should really be on the lookout for that. I think that properly budgeting, just assuming that you have no claims this year, you have to consider that you could have a claim. Really. I encourage all associations to work with their their broker and look at a budget. Don't be afraid of that budget. Your broker is probably going to give you a higher budget estimate that you than you really want to hear. But I really encourage you to build that into your budget as a realistic number, and then if your insurance program happens to come in a little bit less than that's a gift to you this year, and maybe set aside that money in reserves. Not

Kevin Davis: 26:51

so, this is the magic. This is the magic. So what do you think they're going to come back at? You think the rates gonna go higher, stagnant. What's What do you think? What's your prediction for next year.

Robin Manougian: 27:01

You know, I think that we were looking for some recovery in 2025 I would say that the hard market, particularly as we continue to move through the the the most active part of the hurricane season, it doesn't end Kevin until the end of November. So we've got a solid two months in front of us. We've got another storm system that's brewing again in the Caribbean and coming in through the Atlantic. So I'm seeing some instability in the weather, and carriers are going to start getting nervous, particularly if we have another significant named storm event coming up. We're only on h and we were predicted to have 23 storms, 23 named storms in April, when, when, you know, I initially started talking about weather in the early spring, we were looking for a very, very active hurricane season. I would say, if you were budgeting for, I would say 20% increase in your premiums, if you're renewing in 2025 that would be my best guess. If you are having claims yourselves. So that 20% is for the very healthy Association. If you're having claims yourself, you need to to have a more detailed conversation with your broker going into renewal.

Kevin Davis: 28:34

Okay, so what? What keeps you up at night? Now, what's, what's the biggest fear when you look in his marketplace for community associations.

Robin Manougian: 28:42

I think my biggest fear, and it really depends on where you're located, is, is the insurance going away for some insurance? I'm very, very concerned about Florida, because, you know who's moving there, there's a lot of retired people who are looking to live out the rest of their their years in a warm climate and play tennis and do all the fun things that they've earned, but the the weather is not cooperating with them, and if it's not the weather that's chasing them away, then it's going to be the premiums that do that for them. There's been some rumblings that perhaps the condominium concept itself may go away in a state like Florida, you simply will not be able to support the kinds of premiums that are coming for some of these condominiums, along with all of the reserving that needs to be done simply to maintain a building that takes an unusual amount of battering, wear and tear coming in from the ocean. So my concern is that maybe that condominium concept in certain states will go away, and then what you have is private equity coming in and snapping up the buildings and. Got an apartment concept that really takes over. So, you know, long term, in my lifetime, will insurance itself go away? It will not, but I think we will not see single digit premium increases and sure and insurers will start to, you know, look at the kinds of coverages that they're offering, and there will be more return risk transfer back to the insured. And that is something that I think is probably inevitable, and that's a

Kevin Davis: 30:34

good point. Basically, what you're saying is, is that by increasing deductibles, maybe limiting coverage. That means me, as a board member, has taken on more responsibility, financial responsibility, than I would really like to. So that's that's kind of what you're talking about for our future, and I'm paying more money for it also,

Robin Manougian: 30:53

well you are. And what does that mean? That means that condo assessments, in living in condominiums, it will probably become much more expensive. I mean, look, condominiums was an ingenious way of owning property and having equity in property. When you couldn't own a single family house, or you simply didn't want to, there are a lot of people who enjoy the freedom of maintaining the things that they are supposed to maintain in their unit and allowing the association to take over the common element maintenance, and they simply pay toward that through their condo fee. But those condo fees are starting to get much more expensive, and that is also a concern of mine. And

Kevin Davis: 31:41

another problem is, I'm glad you brought that up, is that that was 40-50 years ago, and those buildings are now 40-50 years old, and they need things to be taken care of, and they're not taking care of them. And that's another issue too, because as an insurance person, you know it gonna cost me more for my 40 year old condominium complex than my 10 year old condominium complex. That correct?

Robin Manougian: 32:04

That's correct. So, you know, I've had board members who simply couldn't take it anymore, and they've decided to sell their units. And people understand what living in a very old building? And I don't mean old buildings that haven't been maintained, but simply our older buildings. I mean, you know, we, we've got carriers who don't maybe want to look at a building that's older than 15 years of age. You know, in areas like New York and DC, you've got buildings that were built in the 1800s and so what's, what's to happen with those associations? They can be perfect buildings, but if, if the association itself is is not able to fund the premium to get to the right coverage that they need to, then, then what happens to the association? All right, Robin,

Kevin Davis: 32:55

before we go, you got to give us some good news. Okay, you know, we what, what's, what's something we can look forward to as in the future as I'm living in a again, 50 unit, eight story condominium complex, and I want to hear something that I can be happy about. You know, before, before we leave. Give you some good news. Robin,

Robin Manougian: 33:13

I think it's important that associations make their own good news. So the look you've you've got associations that are run like well oiled machines. The boards know what they're doing. They're engaged. They hire effective management companies who know how to help them reserve they approach a maintenance problem before it's a problem. They're maintaining the building, and those associations that are healthy for the most part, will have their their uh, their selection and their choice of good insurance carriers. So you can control your destiny here. But it's really imperative that that associations look at their buildings very realistically. Look at their budgets, you know, a reserve for the inevitable increases in everything. And I'm not just talking about insurance, but but the the cost of running their communities, and then you will find a healthy balance sheet and the kinds of premiums that you can expect to pay in the given market. It's not about going back to the premiums you were paying five years ago, 10 years ago. It's about really being attractive to carriers now so that you are paying on that low end of the premium spectrum, and what you what you really want to pay and deserve to pay.

Kevin Davis: 34:43

Perfect. That was a great conclusion. I love what you had to say. That was good. So, Robin, thanks a lot. I appreciate it. This has been a great, great talk, and I hope we really helped out. And thanks a lot. And we look forward to having another. Great episode next week, common sense for your comment areas. Thanks a lot. Take care.

Jennifer Johnson: 35:09

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