16 Questions Your Board Should Ask Before Approving an Insurance Renewal

Board members don't need to become insurance professionals. Your job is to make an informed decision and document it. Good questions are how you do that.

What changed

1. What is different from last year's policy, besides the premium?

Ask for a list of every change: limits, deductibles, exclusions, sublimits, endorsements, carrier. A flat premium with a new exclusion is not a flat renewal.

2. Why did the premium change?

Ask the broker to split the change into its parts: rate, building value, losses, and coverage changes. Each has a different solution.

3. Has anything changed about our building that underwriters should know?

New roofs, plumbing or electrical upgrades, leak detection and other improvements can earn better terms, but only if they're in the submission.

The building value

4. What is the building insured for, and where did that number come from?

The limit should be based on a current replacement cost estimate, not last year's number plus a percentage.

5. When was our last professional replacement cost valuation?

Some states set a schedule. Florida, for example, requires condo associations to update the replacement cost at least every 36 months. Elsewhere, ask whether the value has been checked recently enough to trust.

6. Do we have a coinsurance clause, and are we at risk of a penalty?

If the building is insured for less than the percentage of value the policy requires, the carrier can reduce a claim payment. Ask whether the policy uses an agreed value endorsement that waives this.

What the association pays on a claim

7. What are all of our deductibles?

Ask for every one in a single list: all-other-perils, water damage, wind or hail, named storm, earthquake and any per-unit deductible. Ask for percentage deductibles in dollars.

8. Who pays the deductible under our governing documents and state law?

Some declarations allow the association to pass the deductible to the owner of the unit where the damage started. Some states cap that amount. Know your rule before a claim happens.

9. Can our reserves absorb the largest deductible we might face?

A deductible the association can't fund becomes a special assessment.

How the renewal was marketed

10. Which carriers were approached, and what did each one say?

Ask who quoted, who declined and why. Declines are useful information about how the market sees your building.

11. Is our current carrier financially strong?

Ask for the carrier's financial strength rating and whether it's an admitted carrier in your state or a surplus lines carrier. Surplus lines carriers aren't backed by your state's guaranty fund.

Liability and the board

12. Are our liability and umbrella limits appropriate for our size and risks?

Pools, garages, elevators, playgrounds and commercial tenants all affect liability exposure.

13. Does our directors and officers (D&O) policy cover current and former board members, committee members and the manager?

D&O is usually written on a claims-made basis, which means the policy must be in force when the claim is made. A lapse can leave the board unprotected for older decisions.

14. Do we have crime or fidelity coverage, and does it cover the management company?

Associations hold large amounts of owners' money. Many governing documents and lenders require this coverage.

Compliance

15. Does this program meet our declaration, our state statute and lender requirements?

Ask the broker to confirm in writing, and refer statutory or governing document questions to the association's attorney.

16. What do unit owners need to know?

If deductibles or coverage changed, owners may need to adjust their HO-6 policies, including loss assessment coverage. Plan the owner communication before you bind.

How to use these questions

• Send them ahead of time. Give your broker and manager the list when the renewal starts, not at the meeting.
• Ask for answers in writing. A one-page summary is enough.
• Invite the broker to the meeting. Owners and board members get better answers from the person who placed the coverage.
• Record the discussion in the minutes. Documenting what you considered is part of protecting the board.

Frequently asked questions

Is it the board's job to know all of this?

No. It's the board's job to ask, to make an informed decision and to document it. The broker and manager provide the expertise.

What if our broker can't answer these questions?

That's useful information too. A well-run renewal should produce clear answers to every question on this list.

Should we get quotes from more than one broker?

Some associations do, especially when the renewal increase is large. Be aware that carriers usually only work with one broker per account at a time, so coordinate carefully to avoid blocking your own market.

Sources

• CAI Rocky Mountain chapter, questions for boards renewing insurance
• Florida Statutes § 718.111(11)(a), replacement cost determination at least every 36 months
• Maryland Insurance Administration, Condominium insurance FAQs