Insurance Panel Discussion

1. Insurance Panel Discussion CAI-MN 2019 EXPO

2. Market Update 2019 Created & Presented By:Eric SkarnesInsurance Warehouse

4. State of the HOA Market in Minnesota • The largest volume of townhomes and condominiums in MN is located in the 7 County Metro • MN is now considered a catastrophic state • For every $1.00 taken in for townhome/ condominium insurance premiums, the industry pays out $1.34 in claims • Each company has had varying results, but almost all companies have experienced operating at a loss in the HOA market

5. State of the HOA Market in Minnesota • Industry wide – approx. 72% of all claims paid are for wind & hail damage • In MN, data has shown that complexes with over 10 buildings perform 25% worse than those with less than 10 buildings • Why? More roofs, more siding = more damage • Generally asphalt roofs and vinyl/metal siding have performed the worst

6. To Mitigate These Losses Companies Have: • Pulled out of the marketplace (non-renewals) • Placed a moratorium on new business • Increased Rates • Since Q1 2013 average rate increases have been 15%-25% a year • Added separate wind/hail deductibles to polices • Per building or percentage deductibles • Added exclusions or endorsements to limit payout on claims

7. Increasing Wind/Hail Deductibles • Previously common wind/hail deductibles were $5,000 or $10,000 • Example: $40,000,000 Building Coverage (Coverage A) • 2% Wind/Hail Deductible = $800,000 • 5% Wind/Hail Deductible = $2,000,000

8. Cosmetic Damage Exclusion • Definition: Usually defined as marring, pitting or other superficial damage from hail that alters the appearance of the roof, but does not prohibit it from functioning as a moisture barrier • There was a previous Matching Exclusion that attempted to do the same thing but was voided by a federal judge • Previously policies paid to replace the undamaged portion of a roof or siding if they could not find the matching color and product

9. Cosmetic Damage Exclusion Building #1 had hail damage to the North side of their roof. Estimates show the portion of the roof that was damaged will cost $25,000 to replace. The undamaged portion of the roof will cost $75,000 to replace. The building has a $10,000 per building wind/hail deductible.

10. Actual Cash Value (ACV) Roof Endorsement • Definition: Is the amount equal to the replacement cost minus depreciation of damaged property at the time of the loss • Some carriers are moving to an Actual Cash Value endorsement instead of the standard Replacement Cost • Commonly endorsed on roofs 15 or 20 years old • Example: 30 year shingle was installed 15 years ago at a cost of $100,000 • 30 year shingle / 15 years of use = 50% depreciation • $100,000 replacement cost x 50% depreciation = $50,000 total ACV payout

11. Actual Cash Value (ACV) Roof Endorsement • Building #1 had $100,000 in hail damage to their roof. The building had their roofs replaced 15 years ago with a 30-year shingle. • 15 years old / 30 year life = 50% depreciation

12. Looking to the Future • Boards and property managers need to be more aware than ever when they are reviewing insurance • There are certain agents that don’t disclose some of the shortfalls of their policies so make sure to ask the right questions • Recommend using an agent who specializes in writing HOA’s • HO6 policies are more important than ever

13. Proper HO6 CoverageSet Limits at a Minimum of Master Deductible • Coverage A (Building/Dwelling) • Loss Assessment • Sewer/Drain (Sump Pump)

14. The Good News… • Still carriers in MN that provide great coverage & premium • There are a handful of agents who specialize in writing HOA’s that are happy to help • If you use an HOA insurance expert, you don’t need to be an HOA insurance expert yourself

15. Navigating the Types of Insurance Policies Created & Presented By:Trey GriffyNesbit Agencies

16. Property Insurance • The insurance policy that associations are most familiar with • Protects an association’s physical assets • Buildings, Association Contents, Business Income, etc. • Often combined with a general liability policy as a package • Package policy may also include crime and directors & officers insurance • Typically has most impactful deductible schedule • Property Deductible • Wind & Hail Deductible • Usually includes a broad array of additional coverage inclusions

17. Property Insurance (Cont’d) • Several important considerations: • Your association’s building limits • Auxiliary buildings and structures coverage • Business Personal Property coverage • Percentage wind and hailstorm deductibles • Property deductible: Per Occurrence vs. Per Building vs. Per Unit • Sewer Backup Coverage

18. General Liability • Protects an association from damages arising out of bodily injury or property damage that are a result of the association’s negligence. • Bodily Injury: • Example: Slip and fall injuries • Property Damage: • Example: The garage door of an underground parking structure fails and strikes a vehicle while it’s exiting the garage. • Medical Payments Coverage: • “No Fault” coverage for minor bodily injury claims for which proof of negligence is not required. • Designed to settle claims quickly and avoid drawn out legal proceedings. • Typically, no deductible for general liability claims

19. Crime & Fidelity • Designed to protect an association’s financial assets from dishonest or criminal acts committed by its employees. • Crime & Fidelity Insurance vs. Traditional Fidelity Bond • A traditional fidelity bond is more limited in scope. • Typically defines an association’s employees as board members only. • A Crime & Fidelity policy expands the definition of “employee” to include the following (exact definition varies by policy): • Property Managers • Accountants & Bookkeepers • Other Volunteers • A fidelity bond only covers acts of employee dishonesty. A crime and fidelity policy provides coverage for a variety of criminal acts.

20. Crime & Fidelity (Cont’d) • What does a crime & fidelity policy cover? • Employee Dishonesty • Example: A property manager discreetly opens a secondary bank account in the association’s name. He or she then transfers thousands of dollars into it for his or her personal use. • Forgery or Alteration • Example: A board member steals several association checks and proceeds to pay out thousands of association dollars to various entities. • Theft, Disappearance and Destruction • Covers the loss of money and securities from inside the association’s premises, or a bank due to theft, disappearance or destruction. • Third Party Crime Coverage • Extends coverage to 3rd parties who sustained a loss as a result of your employee’s dishonest actions.

21. Directors & Officers • Protects the board of directors from legal action brought against them for allegations of wrongful actions. • Associations are especially susceptible to these allegations: • Failure to properly administer board elections • Discrimination • Failure to adhere to the association’s bylaws • Challenges to assessments • Failure to maintain common areas • Mismanagement of association funds • An association will need to defend itself, whether or not they are at fault. • Defense costs are often times the most costly part of a D&O suit

22. Directors & Officers (Cont’d) • Valuable D&O Coverages to Consider • Defense Costs: Paid inside or in addition to the policy limit • Inside: Defense costs are paid as a portion of the liability limit. • In Addition to (or Outside): Defense costs are paid separately, in addition to the liability limit. • Full Prior Acts Coverage • Covers claims that occurred prior to the policy’s inception date. • Lifetime Reporting Period for Board Members • Covers board members even after they have left their seat on the board. • Inclusion of the Property Manager as an Insured • Extends D&O coverage to the property manager.

23. Commercial Umbrella • Provides an extra layer of liability coverage in addition to the association’s primary liability limits • Available to cover the following underlying policies: • General Liability • Directors & Officers Liability • Commercial Auto Liability • Employers Liability (Workers Compensation) • Limits are available in million dollar increments to best suit your association’s needs • A commercial umbrella policy is very affordable and a great value add

24. Workers Compensation • Designed to cover the lost wages and medical bills of employees who are injured during the course of employment • If your association has employees, Minnesota laws requires you to carry workers compensation insurance • Failing to do so may result in significant penalties • Up to $1,000 per employee per week without workers compensation • Workers compensation is not just for associations with employees • Uninsured contractors working on premises may be classified as an association employee if they are injured while working for the association • The cost of an “if any” or “zero payroll” workers compensation policy is less than $350 per year

25. How to Bid Insurance Created & Presented By:Grant HerschbergerMarsh & McLennan Agency

26. Deciding to Remarket • Reasons to Remarket • Coverage Review • Uncompetitive/Unreasonable Rates or Deductibles • Poor Coverage by Carrier • Agency Change • Pros and Cons of Remarketing • Pro: Review of policies, possible rate/coverage/deductible improvement • Con: Carrier burnout

27. Remarketing Timeline • 90 Days Prior to Renewal Date • Contact current agent • Discuss options with the Board • 60 Days Prior to Renewal Date • Touch base with current agent and confirm target date/pricing • If remarketing, send RFP (Request for Proposal) to potential agents

28. Remarketing Timeline • 30 Days Prior to Renewal Date • Receive proposals • Review with Board and send any questions or concerns to agent • 7-10 Days Prior to Renewal Date • Confirm Board’s decision • Notify agent as soon as possible

29. Items Needed By Agent • Governing Documents • Loss Runs (Currently Valued) • COPE information and relevant update information • Board’s expectations (pricing, timing, etc.) • Also helpful: • Plot Map • Photos • Address list

30. Dos and Don’ts • DO • Communicate expectations with Board and agent • Start the process sooner rather than later • Take the time to review the quotes and ask questions • DON’T • Mid-term quote (unless absolutely necessary) • Contact too many of the same type of agents • Don’t get stuck on asking for “apples to apples” quotes

31. The Life of an Insurance Claim Created & Presented By:Jake Nelson Dan WennerlindWise Insurance Agency Gavnat and Associates

32. Property Claim Occurs 1. Insured Responsibility • Claim reporting procedures • Time limit for reporting • Protocols should be established on reporting claims • Immediate claim mitigation • Insurers may have a recommended vendor or choose your own • Vendors may have a catastrophic team available for large claim events • Time is of the essence; especially during large claim events • Completion of claim documents • Contractor selection / scope of work • Have contractor present at first meeting with adjuster

33. Property Claim Occurs 2. Carrier Responsibility • Claim set-up procedures • Claim assignment and inspection • Field adjuster versus desk adjuster • Scope of repairs • Supplemental process • Claim payment procedures • Replacement Cost holdback versus ACV

34. Other Claims Note: All claims need to be reported to carrier immediately after any incident that may result in a claim. • General Liability • Employee Dishonesty • Directors & Officers • Board Communication • Workers Compensation • Reporting requirements per state law

35. DID YOU FILE? NO YES Contact Public Adjuster Insurance adjuster inspects Policyholder contacts Public Adjuster Free inspection Policyholder disagrees w/ decision Agreeable estimate presented (Price/Scope) Adjuster denies claim/ partial coverage No damage found We investigate & create estimate No claim to be filed Make initial ACV payment Policyholder accepts decision Contractor hired/Work completed Submit estimate with carrier You file a claim Claim is closed Submit estimate Per insurance estimate We meet with Staff Adjuster Contractor submits invoice to carrier (Upper Management) Carrier makes final payment We disagree and file for Appraisal We agree and settle the claim Other Claims Claim is closed Claim is closed

36. Policyholder Invokes Right to Appraisal Demand letter sent to Insurance Company Insurance Company hires Appraiser Policyholder hires Appraiser Has 21 days to name Both Appraisers agree to Umpire Panel meets for inspection Carrier/expert present their argument PA/experts present their argument Panel reviews all info provided Panel determines award Carrier issues payment on award Appraisal Process 2 signatures make award legally binding