According to many experts, the smartest move an HOA can make is to get a high deductible. How high? That will of course depend on the limit of the overall insurance, however, if you’re thinking $1,000, think bigger. With the ever inflating economy and costs on the rise many HOAs choose to opt for policy deductibles of $10,000 and higher. With our clients, the deductible we see range mostly from $2,500 to $10,000. Where that huge spread comes from is a different view on the nature of insurance as a whole.
Opting for a low deductible when choosing a master policy is a “common mistake” on the part of the HOA. Insurance needs to be reserved for catastrophic loss covering of which out of pocket would be impossible. A large tree falls on the attached garage causing severe structural damage, an electrical fire breaks out rendering an entire floor uninhabitable or a large storm causes $100,000 damage to the building roof. The HOA needs to choose the deductible based on the amount they can spend out of pocket given the resources available - how much money they have coming in and the reserves the HOA has at their disposal.
Oftentimes, filing a claim can raise the cost of insurance by 40% at policy renewal. This can be the case with small size claims or even claims that haven’t been paid out.
In general insurers encourage building owners and HOAs to work towards minimizing the chance and severity of losses, in turn preventing out of pocket expenditures, by taking preventive measures such as installing automatic leak detectors, back up systems for sump pumps or taking proactive measures to prevent slip and fall injuries. In many cases additional discounts to the insurance premium can be applied when such improvements are completed.
