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Higher Deductibles- Who pays?
It's no secret that your claim history is extremly important when the underwriters evaluate your account. It's used in determining premium and whether you are an acceptable risk to an insurance company. Most carriers today require five years of loss records.
If the claims during that period exceeds the premium it usually means some type of correction. Poor claims histories pay more and if it's favorable you pay less. If the claim history is so unfavorable you may be forced to buy insurance in the surplus market at much higher premiums with less coverage. The surplus market insurance companies do not offer broad coverage.
Higher property deductibles might be the best method you have to stop claim trends. If you increase the deductible up to $5,000 or $10,000 you usually eliminate many of the common types of losses. The insurance credits are not attractive when you increase the deductible. However, a profitable account with a favorable loss history pays much less in premium.
Who pays the deductible? If you do opt for a $10,000 deductible and the next claim is denied entirely how do you restore the building? Does the money come from the operating account, do you assess all the units owners or do you pursue the negligent units that caused the claim? These are never easy questions to answer but we can give you some suggestions.
Review your condominium documents before increasing your property deductilbe. Be sure there is nothing in the insurance section of the by-laws prohibiting higher deductibles.
Make sure you give advance notice to all the units owners so they can modify their homeowner policies to cover the deductible. A Unit-owner letter should be sent to announce the change. Some homeowner carriers refuse to pay master policy deductibles entirely or at least limit what they pay on these claims. See the article on our website that discusses unit owner claim problems. Find out if your insurance companies pays master policy deductibles before the claim, not after.
Have the trustees agree on a fair method to recover the deductible and vote it into a resolution. You might always try to recover deductibles from units or only under certain circumstances. A resolution will avoid inconsistency and also help divert blame from the trustees or the manager when you seek recovery. A condominium attorney can help design a deductible resolution that is non-discriminatory.
Clean up water damage immediately. Don't get caught arguing with unit owners over who files the water claim. Water damanged units become potential mold claims. Master policies all have mold exclusions and if you end up in a liability lawsuit over heath related problems you'll find youself without coverage.
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