Emerging Threats for Community Associations

January 1, 2025

Community associations are increasingly facing challenges with skyrocketing insurance premiums. This trend is driven by factors such as increased claims frequency, heightened risk exposure due to natural disasters, and stricter underwriting practices.

In some cases, homeowners associations or other organizations choose to go without insurance coverage, potentially putting financial assets at risk of loss. In this article, we explore two of the primary insurance threats facing community associations, then illustrate practices to allow for insurance protection without excessive costs.

To learn more about insurance solutions for community associations, visit the Tailored Community Association Plan (TCAP) page.

Tighter Markets: Two Trends to be Aware of

Community associations typically carry some form of property insurance that protects both the association and the property owners within a housing development against many risks. Unfortunately, two key areas of concern have emerged in recent years.

1.  Fire Risks: Community associations in wildfire-prone areas are increasingly finding it difficult to secure insurance coverage from admitted markets. Insurers are often hesitant to underwrite policies for properties with elevated wildfire risks or those located far from fire stations, due to the heightened potential for significant losses. This trend has emerged in areas with frequent brushfires or other fire events, including portions of California and central Texas.

Factors Influencing Insurance Availability

• Wildfire Risk: Properties situated in areas with a high likelihood of wildfires face greater challenges in obtaining insurance. The USDA Forest Service's “Wildfire Risk to Communities” website offers interactive maps and resources to help communities understand and mitigate these risks.
• Proximity to Fire Services: Homes located far from fire stations or without adequate water sources for firefighting are deemed higher risk, making insurers more reluctant to provide coverage.

2.  Aging Property Developments: Age of a development is a growing challenge in the insurance market for condominium and townhome associations, particularly older ones that have not kept up with necessary updates. Here’s a detailed breakdown of the situation and its implications.

Challenges for Older Condominium/Townhome Associations

• Non-Renewal by Admitted Markets: Insurers in the admitted market (those regulated by state insurance departments) are often reluctant to renew policies for older associations due to the increased likelihood of claims. Aging infrastructure such as outdated plumbing, wiring, and roofs are seen as high-risk factors.
• Rising Premiums: Once non-renewed, associations often turn to surplus or non-admitted markets, where premiums are significantly higher, and coverage may be more limited.
• Cost-Prohibitive Updates: Required updates like plumbing overhauls, rewiring, or roof replacements are expensive, leaving associations in a catch-22: they can’t afford the updates that would make them insurable at lower rates.

Implications for Associations and Owners

• Ex-Wind Policies: Some associations are opting for ex-wind coverage, which excludes windstorm-related damages (such as hurricanes and tornados). This reduces premiums but leaves significant exposure to catastrophic events.
• Self-Insurance and Individual Policies: When associations self-insure, they offload the insurance responsibility to individual unit owners. Each owner must then secure their own policy for property damage and liability, often leading to inconsistencies in coverage and higher overall costs.

Insurance Solutions on the Horizon?

While certain hazards, such as natural disasters, are beyond our control, certain risk mitigation strategies can help community associations reduce the threat of loss while making them more attractive to insurers.

For wildfire risks, the following strategies can help.

1. Develop Community Wildfire Protection Plans (CWPPs): Collaborative, community-driven frameworks that outline local priorities for wildfire risk mitigation can be instrumental. The Fire Adapted Communities Learning Network provides a portal and data library for CWPPs.
2. Implement Defensible Space and Fire-Resistant Building Materials: Creating defensible space around properties and using fire-resistant materials can significantly reduce wildfire risk. The Community Wildfire Mitigation Best Practices Toolbox offers guidance on these practices.
3. Engage in Collaborative Risk Reduction Programs: Participating in programs like the USDA Forest Service's Collaborative Wildfire Risk Reduction Program can help communities work with agencies to reduce wildfire risk.

For older associations such as condominium or apartment development organizations, the following steps can provide better options on the insurance market.

1. Strategic Budgeting for Updates: Associations should create long-term financial plans to prioritize critical updates. Partnering with contractors offering phased renovations can help manage costs.
2. Government or State Assistance: Advocacy for government grants or low-interest loans for infrastructure improvements could provide relief for struggling associations.
3. Risk Mitigation Measures: Even if full updates are unaffordable, associations can reduce risks by implementing partial upgrades, improving maintenance schedules, or introducing fire or leak detection systems.
4. Policy Bundling or Cooperative Buying: Associations might explore cooperative insurance purchasing with other communities or working with specialized insurance brokers to find innovative coverage options.

These trends reflect the broader issue of affordability in insurance markets due to aging infrastructure, inflation, and increasing natural disaster risks. Without proactive measures, associations may continue to face limited options, leading to significant financial and operational challenges. Working with a qualified insurance underwriter can help community associations find affordable coverages that protect financial assets and establish peace of mind for property owners. ◼