Trouble is currently brewing in the condominium insurance sector as seekers of ho6 insurancee are seeing pugnacious increases in insurance rates by 600-700%. Justifications are being demanded, which may even include calls for intervention from state governments.
Obviously, the increases have raised questions, for which condominium building owners themselves are seeking justification as the Community/Condominium Associations are likewise confronted with the same problem. Considering also that condo unit owners are required to contribute payment for the protection of the common areas in use; e.g. shared hallways, garage, walkways, pools and the like.
However, in order to fully understand the rationale behind the increases, one must first have an idea of how condominium insurance coverage works.
What is HO-6 and What Does This Cover?
The term HO-6 differentiates the insurance coverage that owners of individual condo units obtain for their respective unit, from the Community/Condominium Association’s insurance coverage as contained in a Master Policy.
Generally, a basic HO-6 insurance policy covers improvements, installations, additions and/or enhancements made by the condo unit owner, as well as personal property like home appliances and other important gadgets that exist inside their condo unit. Some HO-6 policies may even include personal liability coverage for injuries that a guest suffers from accidents that take place inside a private condo residence.
If personal property includes valuables like expensive artworks, shares of stocks, jewelry or high tech computer assembly, the HO-6 policy must come with a “rider” containing a list of the specific valuables requiring additional coverage. .
A condo unit owner may request inclusion of certain living expenses affected by the occurrence of natural calamities such flooding, power outages or breakdown of equipment. However, such requests must be in coordination with specific coverage for calamities like earthquake, hurricane, windstorm and similar unforeseen disasters. Now here’s the thing, HO-6 insurance providers will cover only condominium units if the condominium building is likewise covered by a Master Policy.
Reasons for the Aggressive Increases in the Cost of Condominium Insurance
According to market experts, for years, insurance companies suppressed their evaluation of risks related to condominiums and condo units. Since there are many players in the insurance market industry, providers have to quote rates that must be competitive. However, in recent years, condominium insurance companies have been met with increased claims for damages caused by water drainage failures or kitchen fires. More often than not multiple condo units were affected.
The cost of repairs that insurance companies have to shoulder are more than what they had anticipated as risks, since costs of replacements have significantly increased through the years. Such problems usually happen in condominium buildings that were not properly maintained and in many cases, in aging condominiums. As a result, insurance companies had to carry the burden of paying for replacement costs, which through years of inflation have substantially increased.
Now condominium insurance companies are placing higher risks when and where factors such as geographic locations, claims history, construction materials and even the repairs and maintenance schedules and procedures of a condominium, are important considerations.