Insurance Information - Conveying the Importance of HO6 Policies
Question: Q: An informal poll of owners in our community found that fewer than half of them have purchased HO6 policies for their units. What can the board do to convey the importance of this coverage and should we even try? If owners refuse to protect themselves, why should the board care?
Answer: A: We’ll answer the last question first. The HO6 policy, as you know, covers the owner’s personal possessions and damage to the owner’s unit that is not covered by the association’s master policy. If an uninsured owner lacks the resources to make essential repairs, damage to the owner’s unit (mold, for example) could spread to other units and common areas.
The HO6 policy also covers an owner’s share of a special assessment needed if the association’s insurance falls short of what is needed to cover damage to the community. If some owners can’t cover their share of the repairs, the burden will fall on other owners to fill that gap. Additionally, and crucially, the owners’ HO6 policy covers the master policy deductible, for which an owner would be responsible, or partly responsible, if a claim is triggered by damage only to that owner’s unit or a few units. Most of the insurance-related disputes with owners involve responsibility for paying the deductible. Those disputes would disappear if owners had the coverage they need.
How can the board explain this to owners, and make sure they get the message? Gregory Pierce, LIA, CPA, vice president and director of business development, for NorthStar Insurance Services, Inc., has a few suggestions:
• Ask the association’s insurance agent to attend an annual meeting at which he/she can explain the association’s master policy, address insurance concerns (including the importance of the HO6 policy), and answer owners’ questions. A group meeting “takes the onus off of board members and managers to explain highly technical issues,” Pierce says, “and it’s an efficient way of conveying information,” because owners hear answers to many questions – not just to their own.
• Draft a letter to owners explaining the master policy coverage, how it meshes, or should mesh, with the owner’s HO6 policy, and how responsibility for the deductible is allocated. The letter should make it clear that purchasing the insurance is an obligation of ownership, Pierce says.
• Explain the need for an HO6 policy, and the risks owners’ incur by failing to have that coverage, in concrete terms. Note, for example, that if the master policy pays for $10,000 in damage to the owner’s unit, the owner will have to cover the deductible, which could easily equal or exceed that amount. “I don’t know many people who’d be happy about writing a check of that size,” Pierce says.
• Don’t rely on one form of communication to convey insurance information. “Take advantage of all available communication channels,” Pierce advises.
Post the master policy declaration (summarizing the coverage) on the association’s Web site, along with the general information letter to owners explaining the need for the HO6 policy.
Send periodic reminders about HO6 policies and insurance coverage generally in e-mail messages and newsletters.
• Encourage owners to contact board members or the association manager if they have insurance questions. “I’ll answer questions from owners, in limited cases” Pierce says, “but it’s better if the questions are channeled through the manager or the board.”