Kevin Davis: 0:00

Think they're gonna change in insurance. If the claims are going down, it doesn't matter as much, okay, if I'm getting 10% less losses I had before, okay, okay. Versus every year they go up, so every year they go up, and now I have money in the bank, because insurance really is about having enough money in a bank to pay when that disaster happens. Because we can't predict it, but we know when that has to happen. We need enough money in the bank. So right now, an insurance company has enough money in the bank to deal with today's issues. They know that. They understand that

Announcer: 0:31

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Robert Nordlund: 0:47

Hi, I'm Robert Nordlund from Association reserves,

Kevin Davis: 0:49

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

Robert Nordlund: 0:56

for common areas. Well, welcome to episode 111 where we're again speaking with insurance expert and regular co host, Kevin Davis, so he can share some good news with you. Want to make sure you have all the right information at the right time to make the right decisions for the future of your association. This helps you our podcast audience, to be well informed and to be well prepared for the challenging work you do leading your association. Last week's episode number 110 featured a great interview with Russell Muns of community financials. He's a regular guest expert on our show and one of our podcast sponsors, and he was speaking about what to look for in your monthly financial reports. So the numbers have meaning now if you get your monthly financial reports and they just look like numbers on a page and you have no idea what they're saying or if they're right or wrong, or what you should do about them, make sure you catch episode 110 now, if you missed that episode or any other prior episode, take a moment after today's program To listen from our podcast website, Hoa insights.org or watch our YouTube channel, but better yet, subscribe from any of the major podcast platforms, sure you don't miss any future episodes. Well, those of you watching on YouTube can see the HOA insights mug that I have featuring a cartoon that puts a smile on my face. You can get mugs and things like that from our merch store, which you can browse through from our Hoa insights.org website, or the link in our show notes, you'll find we have some great free stuff there, like board member zoom backgrounds and some specialty items for sale, like the mug that I just showed. So go to our merch store, download a free zoom background, then take a moment, look around, find the mug you'd like, and if you're the 10th person to email me at podcast at reserves, a.com mentioning episode number 100 and 11th mug giveaway, we'll ship that mug to you free of charge. We enjoy hearing from you responding to the issues you're facing at your association. So if you have a hot topic, a crazy story, or a question you'd like us to address, you can always contact us at 805-203-3130, or email us at podcast at reserve study.com now today's episode comes from a question submitted by Tracy from Naples, Florida, who said, what can you tell us about insurance rates? When is the bad news going to stop? So Kevin, bracing for that question, what's this good news that you want to share today? Well,

Kevin Davis: 3:33

you know, it's fascinating. The first quarter is over, and this is, this is May, and we're looking and it's very quiet out there. It's been quiet. We had that major fire, and we had a couple other disasters too that happened. We had an earth major earthquake that happened in Miramar, you know. So we had a lot of things going on, but it's been quiet. And when it's quiet, that means is that this uncertainty, okay, but it doesn't necessarily mean it's bad, because it was bad. We were here in the news right now that insurance company paid X number of dollars for the fire. It made X number of but we haven't heard anything from the fires. We noticed 270, $5 million economic losses from the fire, biggest loss ever. But how much of that is insured? And that's what we don't we haven't heard yet, and we don't know to answer that yet. So it's May, and it's quiet out there. So what I did was this, I started looking at all the claims that we have, and we have about 30,000 Community Association in our office. Okay, so and we write all over the country, and so we start looking, and start noticing, in that first quarter, we're seeing less claims that we've seen in the past. So this time last year, our claim count is down. So when the claim counts go down, and then all of a sudden we recognize the fact that over the past couple of years, the rates have gone up. So you can't get better than that. I mean, rates are going up, claims are down. You. Guess what happens is that that's the profit for the insurance company. Yeah, that's profit with insurance companies the right. What happens? Yeah, and what happens when insurance companies have profit? Yeah, what happens with insurance can have profit is capacity comes in. That means new people want to come back in and guess what? They want to write business. I doubt what I'm doing right now is just purely speculation. This is based on my years of experience, and look reading the tea leaves and everything like that. So most people will disagree with me, but based on just those two things, look, the claims counts going down and premium going up. We know that companies are making money right now. However, now this is the most important part of it. We don't know about the first quarter losses yet. We know we haven't heard anything. Normally, we hear things. And the second thing more important is the tariffs. The tariffs will create major problems for insurers, okay? And the main reason why is because you got to rebuild. You gotta get plumbing. You gotta get wood from Canada. You gotta get all the refrigerators and washers and dryers and cars from China. So you're talking about a major problem there for insurers that could cause a problem.

Robert Nordlund: 6:19

It's early, and you got me thinking about a couple things. Number one, you're reminding me about, I think it was high school economics. High school was great. You learned about the major things, like what gravity is, just the reality of this world that we live in, and the economic reality of supply and demand. And when you have profit the insurance companies, there's going to be more people who want in on that, and so they're going to come in and increase the supply, because there's a that tightening of the demand when there's not very many insurers there. So they're going to rebalance that. And when there's more competition, because there's more insurers, that's going to bring the profits down. And let's not talk about the companies now, but talk about the premiums down. That's That's what that's good thing.

Kevin Davis: 7:10

And one thing is important. That's why the tariffs are so important right now. If the tariffs go away, then all of a sudden, now you will see a big change, probably by the third quarter, everybody's sitting tight. Capacity is coming in, but the tariffs, the key, the tariff, if they go away, then all of a sudden, now you will see the insurers coming in. Because right now, everybody's on hold, because we don't know, but I am seeing things that says they're ready to say, Okay, we want to be competitive again. You know, we want to write business again. Rates are high enough now where the insurers are making money, okay, as long as the tariff doesn't kill us, or the fires and the floods and the earth, all that kind of stuff doesn't kill us. But even if they do, they're prepared for that. Now, they're prepared. They they are aware of these disasters. There's awareness is there. So they weren't prepared for the LA Fire, if la fire is so unique because of the wind and everything that happened never happened before. So they are scared of that, but they still don't know how much money they are

Robert Nordlund: 8:25

have to pay obligated. Yeah, we hear these big numbers, and you said 270, 5 million, but I hadn't appreciated that not all of that is an insurable loss that the insurers are going to have to shoulder. So it could be the loss of, I don't know, the hillside, the greens, the

Kevin Davis: 8:47

vegetation the state owned. The city own it, you know, yeah, it's just not insuring.

Robert Nordlund: 8:52

Or the businesses that just aren't in business anymore, they've moved, they've left, and that may not have been insurable. There's so many things that so the insurable number may be a lot lower than that, 275,

Kevin Davis: 9:05

or the wear and tear it takes on just getting to work now, you know, if you can't go through those areas, you know, is it those part of economic loss too? It's just interesting, yeah. So, yeah, that's that's not non insurable loss. It's not insurable economic loss doesn't make it an insurable loss. So right now, all the insurers are sitting there and going, Okay, we looked at that, what happened in January and some of the disasters, or some flooding and things like that, and it didn't cost us as much we thought. Right now it may be more, because there's still things got it we got to go through and the tariff days that it is, we just see the claim counts are lower. And that's the most important part of it. Is that for the first time in about four or five years, that first quarter of this year is first quarter last year, the claim counts have declined. That is such great news.

Robert Nordlund: 9:58

Just fascinating. So last I'm not sure it was last time we spoke, or a couple times ago we spoke, you were talking about how the insurers were looking at their loss history and loss history. That sounds like that's a real trailing indicator. So that talks about what happened from the losses in 2020 24 that are finally catching up and they're paying, okay, two questions, the big la fires. That's what we're talking about. And that was January. January. Yeah, January. Okay, big la fires. Do Floridians care about that? Do people in Boston care about that? Is insurance a national thing, and so it's

Kevin Davis: 10:42

gonna Okay, all right, just like, just, just like the earthquake they had, you know, in January, also, right? That earthquake impacts insurance. In other words, insurers, they look and say, Okay, we have X number of dollars here. Okay, and if we use it all up in California for the fire, then guess what? I can't use it up in Florida for a hurricane. Well, I can't use it up in other areas. You know, there's only so much lost dollars you have and and you have some, I don't want to get too deep, but you have reinsurers. Okay, sure. Yeah, exactly. So instead of, if I own my insurance company, I don't want to take every dollar I get in. I want to get somebody else to take participate in my loss. Now, they have certain capacity too. They may say, Guess what? I'm worried about the disasters, the fires, the floods, the earth, earthquakes, all those things. So I'm not, instead of giving you this much money, I'm gonna give you this much money. So now is this, it's just a matter of capacity. Everything has to do with capacity. How much money and insurers are going to say, I'm going to use on disasters, on fires, and so what they may want to do is say, I don't want to write fire like, for example, earthquake, okay, in California, you know, insurance that we don't want to do earthquake at all. Okay? So you have to go to the Earthquake Authority and get on earthquake, you know, either we second sell it, because they're saying, this too expensive, we can't make money out of it. But here's the part about insurance. Part of it is that the thing that gonna change in insurance, if the claims are going down, it doesn't matter as much. Okay? So just think about if I'm getting 10% less losses I had before, okay, versus every year they go up to every year they go up and now I have money in the bank. Because insurance really is about having enough money in a bank to pay when that disaster happens, because we can't predict it, but we know when that disaster happen, we need enough money in the bank. So right now, an insurance company has enough money in the bank to deal with today's issues. They know that. They understand that right now, the two most important issues is a unprecedented disaster like what happened in LA and tariffs is the two key things that can change things. It's possible that they made our impact as much as we thought they would, and trends are going down. So if I'm an insurer right now, I'm saying now it's time to get back in that marketplace. Because if there's a claim six months from now, nine months from now, and it cost me a lot more to get refrigerators and things like that, I can bake I can bring that cost and to make sure it it's be okay. You know, they're looking at the cost now and but right now, there's money there. And so the competitors are saying, I want a piece of that action. You know, I'm looking and keeping the eye open for the tariff. And what happens? We start paying a lot of money on those losses, but in the meantime, I'm ready come back in the marketplace. Okay,

Robert Nordlund: 13:47

so you're saying that this first quarter compared to 2024, yeah, you have, if you had 10 claims last year, you have nine claims this year,

Kevin Davis: 13:59

yeah, or eight or less. Yeah, it's enough. Where I'm seeing it for the first time. Because normally it's either, you know, it's always more and it's always more because we write more business, you know, we expect more. So last year we wrote 10 accounts, and this year we wrote 12 accounts, you know, we may get one or two. So we historically get more claims, we write more business, okay, well, for the first time, we're still writing more business, but we saw less claims.

Robert Nordlund: 14:27

Yeah, and if you're getting less claims, you it isn't as painful if one of those claims is a little bit more expensive, exactly because of the tariff, right? Yeah, yeah. The tariff because of inflation, because of whatever. Another twist to that in Los Angeles, for everyone listening, Kevin and I are in the Los Angeles area. That's 1000s of homes, and that's going to be a multi year rebuild. Does that help that it is going to be those costs are going to be. Spread over 2345, years. Does that help things? It

Kevin Davis: 15:04

helps a lot, because the hurt that the fires we had four or five years ago, we're still working on them. We're still figuring out how much to pay. What the accident losses are. Are they gonna rebuild or not? I mean, a lot of these homes won't never be rebuilt, so the true loss will take a couple of years, but we should have some estimates, and without those estimates, means that everybody would panic first, because we saw economic losses that big, right? Was horrible? Yes, hard at the news, and it looked like a war zone. It was just it was horrible, yeah, but when you start sifting things out, and you start seeing what the city is responsible for, the state responsible for. The feds are responsible for things that just not insurable. You go, what I mean, we know what is insurable. But when do you start paying for rebuilding the house and buying new again, furniture and wood that may not happen for a couple of years? Right? So right now, the insurers are pocketing that money until they find out how much money they actually are going to

Robert Nordlund: 16:06

owe. Okay, because what's the tariff from Canada? 30 ish percent. So lumber is going to be 30% more today, but it may not be 30% more in two years when they're finally rebuilding that house Exactly. Interesting, interesting. So we have to change. We have to have our brains slide on a time scale now again, if that wood is in two years, it's going to be inflated by some percentage points also. So yeah, geez, waste Kevin,

Kevin Davis: 16:39

but assurance recognizes that insurance, when they some call an inflation guard, you know, got it where it just because your house is worth X number of dollars, they assume that if you have a loss, is going to be cost more because of inflation. Isn't there? They take into consideration inflation, not as high as it has been. But guess what they take into consideration? I mean, it's that they know what they again. I said job to predict.

Robert Nordlund: 17:08

They've been doing it for hundreds of years. Yeah, they've seen this. That's not news for them. Okay? Well, this is absolutely fascinating. I love having good news to talk about and to get my brain spinning. But at this point in time I look at the clock, we should take a quick break to hear from one of our generous sponsors, after which we'll be back with more common sense for common areas on the topic of good news and insurance. Hi,

Kevin Davis: 17:32

I'm Kevin Davis, the president of Kevin Davis Insurance Services. Our experienced team of underwriters will help you when you get that declination, we provide the voice of reason, someone who will stand by you. Our underwriters bring years of knowledge to our clients that can't be automated by technology or driven by price. As a proud and wins company. We bring true value to your community association clients. We are your community association insurance experts,

Robert Nordlund: 18:00

and we're back. Okay, so Kevin, we talked about claims being down, the actual cost being spread out over the years, but I want to come back to that question, why are claims down? Any ideas on that?

Kevin Davis: 18:14

And this is the interesting thing for for me, because what we're seeing, what I believe it is, is we have educated inform board members who understand their roles and responsibility when it comes to maintaining their association. And

Robert Nordlund: 18:31

we have, hopefully a few 1000 that have listened to you say that here on the podcast,

Kevin Davis: 18:36

exactly excellent, because if you think about it, claims going down for the first time again. Policy count goes up, claims going down. So I have to believe that the people who are out there again, if I come, if I'm saying, guess what, guys, here's your insurance premium. And the reason why it's higher because your maintenance agreement, you don't have a reserve study. You'd have reserves of off. That was sudden. You get the point. You start hearing because now you're paying more money for your insurance. Simple as that, yeah,

Robert Nordlund: 19:11

when I'm when I'm thinking about it, I can see myself walking around a property, and this property says that, you know, our insurance went up from 50,000 per year to$100,000 per year, and that money is now spent and gone. And I want to say, Hey, folks, if you would have spent 10,000 or$20,000 to maintain or fix up a few things here and there, your insurance premium wouldn't have doubled, and you'd have that invested in your own real estate. And that money is not spent and gone. Is that what we're talking about?

Kevin Davis: 19:43

Yes, is that we're talking about. So it has to be couple things we're looking at as insurance people. We look at something called Risk Management, the likelihood of a claim. Okay? We walk in association. We look at everything, and look at the trees. We look at the roofs. We look at the site, you know, the railings, we've got, all those things that determine what's the likelihood of a loss. You know, what kind of equipment you have there, if there is a water leak, are you notified of it? And so what insurance people have done and say, you know, if you do a b and c, you probably have lower rate or no, if you have to do A, B, C, you probably can be insured. Okay, forget lower rate right now. We're not in a lower rate environment. In order for you to be insured, there's certain things you want to have to do. And I think what's happening is they learn that they have to do certain things. The main thing they have to do is maintain the association. Because historically, if your roof is leaking, you submit the claim to your insurance carrier and say, My roof's leaking. Now you know that if your roof is leaking because of a covered loss, you submit it so certain things they have learned and they have experience. So the times have changed, because you have board members now, because paying so much insurance premium, they're getting an understanding that, wait a minute, if I just took better care of my association, I will be able to get an affordable policy. Right? Yes, that's the message.

Robert Nordlund: 21:18

Well, there's two sides of that. If I just took better care of the place. I could afford the policy and I wouldn't get what do you say? Un renewed?

Kevin Davis: 21:26

Yeah, yes. Non renewed.

Robert Nordlund: 21:28

Not renewed, yeah, and the property looks better, yes. And you do the preventive maintenance that prevents what we call deferred maintenance, which is more expensive because of scope creep. Things get projects get bigger. And also, if you do a little preventive maintenance on your roof, that roof, instead of lasting, I want to say just 20 years is going to last 22 or 23 or 24 years, and that $100,000 roof project, you get a few more years life out of it. You're replacing $100,000 roof every 24 years, instead of every 20 years or every 15 years. That's money savings all around so, boy, I see how the math works on that now.

Kevin Davis: 22:14

But even more so, it's like you think about it. You're thinking about, Okay, if you do A, B and C, a roof last longer, and the value goes up, but now nobody's tripping and falling, nothing sliding off the roof, and nobody's getting hurt. You know, that's the key thing a well maintained building, the likelihood of somebody tripping because you didn't trim the trees, you didn't put them past because, because the signs there that says stop, but you couldn't see it because there's grass or something overgrown, yeah, Bush is everything. Those are the simple things that you do to limit those slip and fall losses,

Robert Nordlund: 22:47

right? And that's the same as the carpeting in the hallway. Replace it instead of going from fair to threadbare and poor, you replace it when it's getting worn, and so you don't have someone trip and fall and break a hip and have that claim in the hallway, so just not letting your property get Shaggy, trimming your trees, like you say, so you don't have branches falling on cars and people.

Kevin Davis: 23:12

I'm starting to see it to me. That's when I said, You know what? This is interesting, because the claims are going down. Why are the claims going down? They have to got the message. The board of directors or community associations have gotten the message, and the message is, you are a well maintained Association. You can be insured, okay? And once they understand that, they understand that we Okay, the insurer are saying you're gonna participate in some of the losses. If you have a water damage loss, guess what? You have a separate deductible for that water damage. So now all of a sudden, that water damage loss is more important to you today than it was five years ago, where we covered it no matter what. So now all of a sudden, the Board of Directors saying what we need to do is to have something there that be so we can be notified of that water that's leaking, right? Or we got to have something that says you, you don't own are going to be responsible if that water leaks, limiting

Robert Nordlund: 24:09

the insurer's expenses. And they have devices like that, that in the catch pan, in the cash pan, under a water heater, something that senses it's leaking, and you can catch it quickly and solve problems quickly. Boy, that applies to everything we've been talking about. Catch the deterioration on the roof and fix it before it gets bad and causes that expensive interior unit damage. Catch the carpeting so that someone doesn't trip, and then you have a real problem, and I'm thinking there's some things that probably aren't going to help, like that ugly furniture in the lobby that you've kept for 20 years. I'm not sure if that has a direct insurance relationship, then it just may be low curb appeal when prospective buyers walk in the lobby.

Kevin Davis: 24:57

But you know what it is? Is this, if you. Place it, you have a mindset that we need to replace. You know, that's what it is. It's just a mindset. Once you say no to one thing, it says no dumb things. It's like what happened in New York with Giuliani with a broken window thing, right? Right, right? If you have a broken window, that means it attracts a nuisance, attract those kind of people. You know, if you have a environment where you do maintain it, you attract people who want to live in that area a keep things maintained, right, you know.

Robert Nordlund: 25:27

And if you have a standard, yeah, people elevate the standard cool, yes. Okay, well, we've been talking in the past about, I'm realizing I'm doing a lot with my hands here, lowering the temperature, you know, increasing civility and decreasing the anxiety. And now we're talking about raising the standard of what I expect from my property. We as a community, we want this to be a nice place. We want things to be well maintained. And what we're talking about today is that that's very cost effective,

Kevin Davis: 26:00

exactly, exactly, but we're forcing the insurance company is forcing board members of community association to say, we need to have a well maintained building to get better insurance. But the reality is, we having a better maintained association will attract better people to live there.

Robert Nordlund: 26:16

Yeah, and it's all basically, what we're talking about is just fundamentally fiscally responsible behavior. Is that something I've heard of as called your loss history, where, when the claims are down, is that loss history?

Kevin Davis: 26:31

Yeah, wait, your loss history is your your claims you've had over a certain period of years? Some some are three years. Some are five years. They look at your loss history and say, Okay, you have water damage claims. Okay? Or you ask, slip and falls, whatever it is, they look at it and what have you done to fix it? What have you done to stop it? And we look at those things to find what it is you've done. Sometimes you've done nothing. Well, you've done nothing. Guess what? Your insurance rates continue to go higher and higher and higher, but if you have done something, you are able to be renewed. Okay? Your rate may go up, but you still, they still want to keep you as a client, having preferred clients not renewed, you're not renewed. If you look at your loss history, if it gets to a point you don't care about your loss history, we care more about than you do. Hey, we want to pass on you guys. Oh,

Robert Nordlund: 27:15

yeah, there's different buckets here. There's property and casualty, there's DNO, there's cyber. Is this across the board, or do you see this more in one category or another? It

Kevin Davis: 27:27

all goes together on a condo. And the reason why is this, you have a property loss, okay, the roof caved in, or you have any kind of regular property loss, whatever fire, whatever it is, okay? That's one thing, but if maintain it, it minimizes your liability losses. Okay? If you have a well maintained Association, then are you sued as a board member because you did something wrong, you failed to enforce the rules, or you failed to maintain because you didn't maintain a property correctly? Down a special assessment? Well, if you maintain the property. You don't have a special assessment, therefore you don't have a DNO claim. So it all goes together. You eliminate your DNO claims, you eliminate your GL claims. You're eliminating your cyber claim. For one reason is that you have cyber claims because you took your eye off the ball. If you are a well maintained Association, you will know you have a maintenance you have a maintenance agreement that you have to look at. You have, you have other things you look at. You have, you just become more aware of everything. Yeah,

Robert Nordlund: 28:30

you're talking about elevating the standard of behavior at your association exactly, no longer just letting things slide and being a babysitter of the association. You are curating it, you're nurturing it. And I hope if a homeowner says, hey, the pool gate isn't closing, then you as the board, you fix it, rather than just let it slide.

Kevin Davis: 28:50

Because every time you look at that gate being closed, an insurer may send a drone over and say, Wait a minute, that gate is wide open. Not only news is gone or your rate just went up 20 30% that's the key thing. Yes, if that gate is not because you have to have self locking gate stuff closing gates, if you don't have that in there, you're not gonna get insurance.

Robert Nordlund: 29:09

And so that's it's that. And I'm thinking about the front entry gate, if that's stuck open, that's just an invitation, or it's actually like a sign that says, hey, yeah, we don't care about our place. We don't can come on in and steal or uninvited guests that kind of stuff. Or I don't kind of want to end on that, but this has actually been a fascinating conversation. Kevin, as always, it's great talking with you. A lot of good news that you shared, and I love hearing that board members are taking hold of their property and proactively doing good things that are resulting in at least controlling the premiums that have been rising last few years. And any closing thoughts to add at this time,

Kevin Davis: 29:51

awareness, just keep being aware of your associations, maintenance schedule. Maintain it, because what's going to happen, rates will start to drop. Because capacity will come in. And if you have a well maintained Association, you will get that preferred rate first right off the bat. So we want to make sure that everybody who's listening to this podcast is able to get a better insurance rate right off the bat. And by doing it, by maintaining Association, you'll be there. So that's good,

Robert Nordlund: 30:18

fantastic. Well, from your lips to God's ears, yeah. Okay. Well, we hope you learned some HOA insights from our discussion today that helps you bring common sense to your common areas. Thank you for joining us today. We look forward to bringing many more episodes to you, week after week after week. We're going to be here. It'll be great to have you join us on a regular basis. Spread the word

Announcer: 30:41

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