Disaster can strike without warning — especially in a country that is extremely vulnerable to earthquakes, floods, hurricanes, typhoons, and so on. Is your community capable of handling the damage that these natural disasters might bring? If not, securing natural disaster insurance should be of immense importance to your homeowners association. Here’s why.
In this article:
What is Natural Disaster Insurance?
Natural disaster insurance, also known as catastrophe insurance, protects a homeowners association from property damage caused by natural forces. If the community’s clubhouse sustains water damage after a flood or the roads crack after an earthquake, your insurance company will pay for your claims.
Most communities will already have an HOA master policy. This typically includes HOA liability insurance, HOA property insurance, and even HOA catastrophe insurance. However, in disaster-prone states, natural disaster insurance may not be included in the master policy. Thus, your community will have to purchase a separate natural disaster insurance policy.
Even if your association is not in a disaster-prone state, you should not be complacent. Make sure to review your master insurance policy to see if the community is adequately covered in case of a natural disaster. For example, if your policy only covers for floods and earthquakes, the community will not be protected from other natural disasters. In that case, you will also have to purchase a separate natural disaster insurance policy.
Why is HOA Insurance for Natural Disasters Important?
There plenty of ways to prepare your community for a natural disaster such as regularly maintaining facilities and having a solid disaster management plan.
However, no one can really predict how much damage an earthquake or hurricane can inflict on your community. In extreme cases, natural disasters can cause up to thousands of dollars’ worth of damage.
Having a natural disaster insurance policy will be able to save your association a lot of money. Without it, the HOA will have to pay out-of-pocket for all the repairs to damaged property. This might not be too difficult if your association has fully funded reserves. Apart from capital improvement projects and large-scale repairs, reserve funds are also used for emergency expenses.
Without natural disaster insurance and adequate reserves, though, the financial burden will fall on the shoulders of your homeowners. The HOA board may levy a special assessment to pay for repairs. Or, the HOA might decide to get a loan but this will likely lead to higher monthly fees as well. Keep in mind that your residents could also be dealing with damages in their homes so their finances will be tight.
In order to protect the financial health of your community and the wellbeing of your residents, HOAs must ensure that they have adequate natural disaster insurance.
What Does Natural Disaster Insurance Cover?
Natural disaster insurance will cover all common areas that fall under the responsibility of the HOA. This includes the swimming pool, community center, basketball court, gym, playground, and roads. In a condominium building, it will also include the lobby, elevators, roof, and shared walls.
The HOA’s natural disaster insurance policy is not designed to cover damage sustained in homeowners’ private properties. Community members should also have homeowners insurance to protect their property from natural disasters.
Natural disaster insurance coverage will also depend on the size of your community. A larger community will require higher maximum limits while a smaller community may get by with modest coverage.
When choosing a natural disaster insurance policy, make sure to consult with your HOA management company or HOA attorney. They will be able to help the board choose the best-suited policy for the community.
What Should Your HOA Do After a Natural Disaster?
It’s nearly impossible to predict when and where a natural disaster will strike. However, a good HOA will be adequately prepared for it.
You can do this by solidifying your disaster management plan and ironing out your natural disaster insurance plan before disaster strikes.
Though every community will have its own disaster response, here’s a simple guide on what HOAs should do after a natural disaster.
1. Inspect Your Community for Damage
Once officials or first responders have deemed it safe, the HOA board or on-site HOA manager should perform a general inspection of the community. Check communal areas and see if there are damages in the exterior, interior, and appliances if any.
2. Contact Utility Companies
If you see damage to your electric, water, gas, and communications, call your respective utility companies. The HOA may need to shut off their service to prevent any more damage from happening. For example, if your water pipes have burst, it can cause appliances to short circuit. This, in turn, could start a fire.
3. Document Property Damage
As you survey the community’s common areas, document all the damage caused by the natural disaster. Take as many pictures as possible to capture the extent of the damage.
4. Notify Your Insurance Provider
The HOA should promptly notify their insurance provider that there has been a natural disaster and discuss the damage it has caused. You need to file an official claim as early as possible to hasten the claims-filing process. Identify who will be in charge of your claim and take note of their contact information.
5. Clean Up
When it is safe to do so, the community will then begin cleaning up and preparing for eventual repairs. If your insurance provider does not make upfront payments, the HOA may need to shoulder the expenses first. You can file for reimbursement after.
Why Is Natural Disaster Insurance Immensely Important?
Natural disaster insurance is one of the best ways to protect your community during earthquakes, typhoons, hurricanes, and floods. It’s not enough for the HOA to rely on their master insurance policy.
You also don’t want to learn belatedly that your master policy doesn’t even cover natural disasters. So as early as now, your association should prioritize finding the best natural disaster insurance policy. It will make all the difference in helping your community recover after the devastation that a natural disaster brings.