Word quickly spread this spring that the Cedar Ridge Homeowners Association’s (HOA) master insurance policy would not be renewed by the American Family Insurance Company. Little did Estes Park’s community of 45 registered homeowner associations realize that was just the first insurance domino to drop in the chain that continues even today.
From becoming totally uninsurable to having companies requiring financially ruinous updates to property complexes constructed 30 years ago to dictating changes in declarations, bylaws and other regulations, owners of property within community associations have learned to become increasingly creative in solving problems created by these insurance traps or are begrudgingly conceding defeat.
The immediate reaction for an owner to “just sell” is another hurdle. While the insurance industry doesn’t forecast its next move, there are signs that issues facing homeowner associations are moving into the world of single-family home ownership.
Owners of one Estes Park 59-unit homeowner association was able to obtain a high cost-low coverage plan through Berkshire Hathaway, “but the current situation is unsustainable,” said a representative of the neighborhood.
The Fairway Club neighborhood saw their insurance costs add more than $350 to their monthly association fees in the last year, but the plan only provides $5 million in coverage. Another association saw their fees triple.
With a replacement value cost of $77 million, Ranch Meadow Condominium Association knew finding insurance for 2024 was going to be difficult, even though the association had not made a claim in more than 10 years. After lowering its request to $50 million in coverage, the association did not anticipate being rejected by 48 insurance carriers in the secondary market. Eight days before the association’s coverage ended, one bid finally was received: $50 million in coverage with an annual premium of $850,000 to be shared equally among 156 homeowners. Not covered was fire or wind damage. The offer was rejected.
Working with local State Farm Agency Owner Sue Fereday, the association asked for the maximum amount of coverage State Farm underwriters would provide, which for Ranch Meadow turned out to be $24 million.
Eagles Landing Homeowner Association also has been creative. With 45 units, the association was able to obtain $27 million in coverage by choosing a higher deductible.
That association is building its own deductible fund to a higher level so it can keep insurance costs as low as possible. But as Shannon Murphy, Interim President, said, “It’s still terrifying.”
“My big concern is that insurance companies are going to tell us that they aren’t going to allow any gas grill in the mountains. If you don’t prove you have bylaws that prohibit anything with gas or charcoal, it will make you uninsurable. And, if you make a claim they’ll drop you,” Murphy said.
CBS news recently reported that HOAs will likely have to institute new guidelines
prohibiting anything with an open flame like charcoal and gas grills or fire pits for 2025
insurance renewals. This move came because insurance companies started looking for ways to reduce risks, especially in high fire zones like Colorado’s mountains. Larimer County already prohibits gas grills being used on short term rental properties and in the past the Estes Fire District has discussed instituting that restriction on properties within the entire Estes Valley.
In a move to appease insurance companies when asked for lower levels of coverage
many homeowner associations across Colorado and in Estes Park are asking owners to approve sections of their declarations that govern the level of insurance the association is required to provide.
Making certain there is defensible space around structures already is an element of
consideration of insurability by many companies. Reported during a recent Estes Valley Fire District board meeting was the possibility that insurance companies were likely to request fire department assistance in compliance checks for other requirements such as eliminating the use of gas grills.
Many HOAs in Colorado’s mountain communities are already banning the use of gas grills by residents as insurance companies increasingly say they won’t insure HOAs that allow residents to use gas grills on their decks or balconies.
Insurance rates are compounding issues for an already slow real estate market created by high interest rates, says Realtor and Canyon Creek Homeowner Association President Jeff Abel. “We had eight units under contract but because of the insurance rates people pulled out. But the cost of everything is going up, even in the Front Range. It’s just accentuated here.”
Obtaining a mortgage is more difficult because of the higher insurance rates, which push up monthly association fees that may make qualifying for a loan harder. And associations that do not have insurance coverage at a full replacement cost value lose Federal Housing Administration certification, one lending option used for some buyers in obtaining a mortgage.
Even with the insurance issue plaguing owners across the country, mostly in coastal areas such as Florida, South Carolina, California, and Texas, there appears to be no national movement to provide assistance, according to a spokesperson in Rep. Joe Neguse’s Fort Collins office. At this point, efforts to assist homeowners is a state issue.
Colorado recognized the insurance dilemma and in 2023 Gov. Jared Polis signed the Fair Access to Insurance Requirements (FAIR) Plan, designed to provide property insurance for homeowners and businesses when coverage is unavailable through traditional means. The operation plan for FAIR will be submitted to the Division of Insurance today, July 1, for approval. The plan is anticipated to accept its first applicants in January 2025.
Addition of that emergency insurance assistance isn’t likely to provide relief to homeowner associations. Classified as commercial operations, by statute the FAIR Plan will only provide up to $5 million in coverage to eligible businesses in Colorado. Owners of single family homes can apply for up to $750,000 in coverage.
With or without outside assistance, homeowners and HOAs need to be proactive about their insurance coverage and not wait until the next renewal date to begin looking at options for the future, says Brian Bernier, CEO of the Professional Insurance Agents of Colorado who was elected to serve as chair of the board of directors of the FAIR Plan. “It doesn’t stop the day you get renewed,” he said.
Colorado’s Division of Insurance has developed a Toolkit on Insurance that may be helpful for many readers. More information on the FAIR Plan can be obtained from the Colorado Division of Insurance.