With summer only a bit more than a month away, it is not uncommon to experience hail storms on a regular basis with some of them leaving a wide path of damage in their wake. Is your association ready for the financial burden associated with hail damage?
Most association insurance policies provide for windstorm and hail damage protection. However, almost all policies have a percentage deductible that can result in an association having to advance tens of thousands of dollars or more in the event of a claim. So how is an association supposed to prepare for this inevitable expense? First, owners should be both reminded and encouraged to obtain loss assessment coverage. This policy rider provides reimbursement to homeowners who are required to pay back a special assessment associated with an insured event. Since we all know that some homeowners will not obtain this coverage no matter how many times that they are reminded to do so, it is not a bad idea to also set aside an ‘emergency fund’ to help offset the deductible expense in the event of a hailstorm. The amount of this fund is discretionary, but I recommend a goal of 20% of the hailstorm deductible(s). In this manner, there are funds available to commence emergency repairs before special assessments are collected and repaid by homeowners.
What about reserve funds? Reserve funds are typically not intended to be utilized to cover an insurance deductible in the event of a loss. Therefore, an association should not rely on its reserve fund balance to cover any deductible expenses associated with a weather related event.