Insurance is a big item in an association’s annual budget, and it is becoming bigger as premiums continue to rise. Boards need to plan for this expenditure every year. However, budgeting can pose challenges based on the insurance market, timing, and claims history. While no one can see the future, associations can employ strategies to budget as accurately as possible, even with a variable expenditure like insurance.
When budgeting for insurance, consider outside factors like inflation, and internal factors like recent claims. Annual inflation will apply to the cost of building materials and labor. Both costs will increase the replacement cost of an association’s building(s), ultimately increasing the association’s premium. If the association had a claim in the last year, the loss ratio between what the association has paid in premium over the years to the carrier versus the amount paid out on the claim could result in a premium increase. To compensate for a potentially large premium increase, the association may want to consider increasing the deductible, adding a per unit deductible, or readjusting limits for earthquake coverage.
Some associations choose to change their annual insurance renewal date to better align with their budgeting season. While this strategy can help, it also comes with downsides. Many associations want their renewal to follow the fiscal calendar with a renewal date at the beginning of a fiscal quarter. However, these dates (January 1, April 1, July 1, and October 1) are the busiest days for insurance carriers, agents, and professionals in other industries. For example, January 1 arrives during a busy holiday season.
A renewal on or near this date could mean a slower renewal process or a higher likelihood of last-minute renewal decisions because agents and underwriters are inundated at this time. Depending on your association’s budget cycle and the renewal date, a change to the renewal date may or may not be a good strategy for more effective budgeting.
The best and simplest course of action for many associations is to check-in with your agent as needed. Although the agent will not be able to guarantee the association’s upcoming premiums, they can use knowledge of the market and current trends to predict what may be coming down the line. Boards and community managers can check in with their agent for an updated estimate before the budgeting cycle begins or closer to the renewal date.
Unveiling the Details of Earthquake & Flood Insurance
