Condo Media - January 2022 - 24

PRICE VS. COST
M
CAVEAT
REMEMBER NOT
ALL INSURANCE IS
CREATED EQUAL!
THE REALITY is most boards never
make the ultimate insurance
decision, because they defer this
task to the Community Association
Manager (CAM). Not only do they
defer to the CAM for insurance
decisions, they do not meet in
person with the community
association insurance professional.
It is one thing to defer the insurance
leg work to the CAM, however, it is
another thing for the CAM to make
the ultimate insurance purchase
and maintenance decisions on
their own. In my humble opinion,
focusing primarily on the point of
sale premium should be the last
decision. The key obligation is to
determine whether the insurance
proposal is proper coverage to
protect, preserve, and enhance the
association assets. Many CAMs put
us insurance professionals to shame
with their substantial community
association insurance and risk
management acumen. However,
why wouldn't the board and CAM
want to transfer the insurance
issues to the community association
insurance professional and let him
or her bare the risk?
24 CONDOMEDIA January 2022
More often than not, board members
primarily focus on " price " when
purchasing insurance. However,
" price " is only relevant if the insurance
options presented substantially
provide the same coverage-apples
for apples-or the board knows there
are never going to be any claims or
facts and circumstances that may
give rise to a claim.
CAUTION: BOARD MEMBERS BEWARE
MORE OFTEN THAN NOT, the management agreement with the association
requires that the association unilaterally indemnify the management company
and the CAM for claims arising out of services provided. If you do not understand
the nature and scope of this provision and the consequences of agreeing
to this indemnifi cation agreement, go directly to your community association
and do not pass " GO. "
The board is obligated to protect, preserve, and enhance the association
assets. Primarily focusing on price in the insurance decision process is
counterintuitive to this duty. Where in the governing documents does it
provide that the board has a duty to save the association money when
purchasing insurance? Nowhere! Rather, the duty is to determine what
insurance will best protect the association assets.
Boards are authorized to seek counsel from professionals when an issue is
beyond the knowledge of the average board member. Insurance is one of those
issues. Moreover, why wouldn't a board always seek counsel from a community
association professional? Boards are always looking for cheaper anything.
Why not obtain counsel from a community association insurance professional
who does not charge for that advice in the normal course?
The " cost of insurance " is not the same as the " point of sale premium. "
The " cost of insurance " is the total amount the association incurs at the time
of a loss or claim plus the value of peace of mind that the association receives
during the claims process. If the board made sure they purchased the best
coverage for the association, the cost of insurance will have been a good deal.
However, if the focus was the point of sale price as opposed to coverage,
there is a very possible reality that the cost of insurance could be signifi cantly
higher than the price. Specifi cally, the association will be self-insured for
the coverage that was sacrifi ced for the cheaper price.
CAVEAT
MORE IMPORTANT FOR ASSOCIATIONS THAN
" POINT OF SALE INSURANCE PREMIUM " IS NOT
BEING SURPRISED BY UNCOVERED CLAIMS!
FOR EXAMPLE, let's say you have a 100-unit association. You are presented with
two D&O policies: (1) a $1,000 price and (2) a $2,000 price. This $1,000 difference
would cost each unit owner an additional $10 per year or $.83 per month. Maybe the
cheaper one is the same or better coverage? However, unless you have the insurance
professional come in and describe why the cheaper is better, or worth the per unit
savings, you will not know. The insurance procurement process is probably one of
the top tasks of the board.
Condo Media - January 2022

Table of Contents for the Digital Edition of Condo Media - January 2022
