Carol Ott: Welcome to Problem Solved, a conversation about challenges facing New York's co-op condo board directors. I'm Carol Ott of Habitat Magazine, and with me today is Kara Ryan, director of compliance at Mackoul Risk Solutions Insurance.
Risk, or rather minimizing it, is what the insurance industry is built on. For co-op and condo buildings that have many risk related events going on, that's a particularly difficult challenge. One way many are trying to control risk is by requiring building residents to have their own apartment insurance. It sounds like an easy requirement, but underneath the hood lurks many challenges.
Kara, can you share with us what some of those challenges are for a board to require its shareholders to carry homeowners insurance?
Kara Ryan: Some of the challenges would be, the main challenge would be, is the process of making sure everybody has insurance .
Carol Ott: And when you say, making sure: so the board can require that its shareholders or unit owners have insurance, how do they even do that? They can't just say "we require it," it's gotta be something in a governing document or a something.
Kara Ryan: So majority of the time there is insurance requirements in the bylaws or house rules which is what the boards can base their request for the request proof of insurance off of.
Carol Ott: And so in those documents, it may say you have to have insurance, but does it say the amount of insurance, or what your personal insurance has to cover? Is that the level of detail that you see?
Kara Ryan: We see-- it varies. It varies from, for building to building. Sometimes it's very open that, they just have to require condo or co-op policy. Other times it's very specific on, what coverage is, and it goes into, limit requirements.
Carol Ott: It would seem to me that if as a board you're gonna start to require your residents to have insurance, it would seem like you would want to create limit requirements and types of insurance that has to be included in a policy. Otherwise the policies may not benefit the co-op corporation if something happens. Is that true?
Kara Ryan: I would say so, yes. That's correct.
Carol Ott: So sort of running through the categories of a personal insurance policy, I don't really even know what those categories are. Can you give me a sense of what they might be?
Kara Ryan: You'd wanna make sure, obviously, that you have liability. Personal contents, loss of use. A lot of times we see that there's a requirement to have the board as well as the managing agent listed as additional interest. And then also loss assessment would be another thing that the board may want to include.
Carol Ott: What does loss assessment mean?
Kara Ryan: Loss assessment is, say for example, in the event that the association does not maintain adequate coverage for a covered cause of loss. The association could then assess the owners to make up for the deficit. The loss assessment will provide owners with coverage for their share of the assessment up to limit maintained as long as the damage was from a covered cause of loss in their homeowner's policy.
Carol Ott: So if something happened, we did a story once on a co-op building that burnt, severely burnt, and people really lost their apartments. And the co-op corporation didn't have adequate insurance. So the loss assessment on somebody's individual policy would help with that?
Kara Ryan: Yes.
Carol Ott: Okay. Yes. So let's say the co-op board or the condo board has this requirement saying, okay, you gotta have insurance. But there's gotta be a way to actually make sure that they have this insurance and that it's renewed and everything. So how do you do that?
That seems like an enormous administrative task.
Kara Ryan: Yeah. The challenge would be for the association, to keep track of everyone's insurance, especially on the larger buildings. And not only just to reach out and say, Hey, we need proof of insurance, but keep in mind that everyone's insurance is renewing at a different date, so it's an ongoing continuing process.
So you could request the building's insurance on March 1st, and everyone could send it in a perfect world. And then somebody's policy could be expiring on March 3rd, so then it starts all over again.
Carol Ott: No board is gonna track this and no management company's gonna track this. And your company saw a need. .
And came up with a solution. So describe to me how your solution works.
Kara Ryan: Okay, so our solution works as, uh. we, discuss with the board or property management company. And it's all computer based, email based. We ask that the property management company notify the unit owners beforehand.
We just don't come out of nowhere and we request proof of insurance and review each policy based on the requirements set forth in the bylaws and in the house rules. We do this for 30 days, obviously it takes some time for everybody to send in proof of insurance. And at the 30 day mark, we then send the report to property management and the board and say, these are the unit owners that have insurance.
These are the unit owners that do not, or that do not comply with the requirements.
Carol Ott: So basically you've created a database . And then you track the renewal rates in that database. And then notify the shareholders or unit owners and give a report to the board. That's the full circle.
Kara Ryan: Yes. And in fact, just an update with that, we had started with a program outside of our own, and it wasn't tailored the way we wanted it to be for the homeowner. So we actually, in the last six months created our own program, which makes us a lot more user friendly for the unit owners, for us and really focuses on, homeowners insurance.
Carol Ott: So give me a sense of, for the co-op or condo corporation, how does it benefit if all the residents have their own insurance? Is the co-op corporation's insurance cost gonna go down?
Kara Ryan: It would not go down. But benefits, certainly the association being assured that everyone has insurance.
It helps to keep the peace, prevents an uninsured owner from suing the association or another unit owner, which is a big deal. We talked about loss assessment before. If loss assessment is a required coverage the association could raise their property deductible, which will result in a premium savings.
Because then if the deductible is higher, if there was, a situation the board can then assess the residents. So it would offset the cost. And a higher property deductible results in, fewer or less severe claims which results in better loss history, is, going to equal better premiums in the future.
Carol Ott: So basically if you get all your shareholders or unit owners on board, it's not gonna lower your insurance cost. But if there's a problem, your corporation is less likely to get entangled.
Kara Ryan: Yes.
The liability for a lawsuit is there and it, it helps, with some knowing that, that won't happen.
Carol Ott: And have you ever had experience with any of the buildings that your company insures or that have participated in this program where there's been a problem that you could share with us?
Kara Ryan: We had a one one building where unit owners were required per the bylaws to have homeowners insurance that required full replacement value.
And after proof of insurance started to come in, we found that there were many owners that were carrying co-op condo policies which would not cover full replacement value if their unit was to, have it.
Carol Ott: And were these standalone units ?
Kara Ryan: Townhouses. An HOA.
Carol Ott: So give me an example. So if in that HOA, the townhouse had burned down, for instance. That unit owner did not have the kind of coverage you were talking about? What would play out?
Kara Ryan: The unit owner would not be able to rebuild. It would, be out of pocket.
Carol Ott: Would the unit owner likely sue the, or go into litigation with the association?
Kara Ryan: And then not only that, if there was, let's say it was a fire situation and it, went to the townhouse next door and the bylaws say that, you're required to, have insurance, they were uninsured, then, the neighbor is then also suing the association and the board.
Carol Ott: I suppose you could say that if everybody had their own insurance, you could perhaps avoid a Sue- Fest.
Kara Ryan: Yes.
All in all, this does benefit the unit owner as well. I know I'd like to have the proper coverage and know that I could rebuild, my townhouse. A lot of times is people just don't realize.
They just don't know.
Carol Ott: I guess they assume that if they burn down, that the association would take care of it?
Kara Ryan: I guess that's the assumption. Yeah.
Carol Ott: So what would be your takeaway for boards? Is this difficult to implement, to require everybody and then do all the follow up?
Is there something that you would advise other boards regarding this?
Kara Ryan: My advisement would be to just to review your bylaws. And enforce them.
Carol Ott: Well said.
All right. Thank you so much for joining us today.
Kara Ryan: Thank you so much. Thank you, Carol.
Risk, or rather minimizing it, is what the insurance industry is built on. For co-op and condo buildings that have many risk related events going on, that's a particularly difficult challenge. One way many are trying to control risk is by requiring building residents to have their own apartment insurance. It sounds like an easy requirement, but underneath the hood lurks many challenges.
Kara, can you share with us what some of those challenges are for a board to require its shareholders to carry homeowners insurance?
Kara Ryan: Some of the challenges would be, the main challenge would be, is the process of making sure everybody has insurance .
Carol Ott: And when you say, making sure: so the board can require that its shareholders or unit owners have insurance, how do they even do that? They can't just say "we require it," it's gotta be something in a governing document or a something.
Kara Ryan: So majority of the time there is insurance requirements in the bylaws or house rules which is what the boards can base their request for the request proof of insurance off of.
Carol Ott: And so in those documents, it may say you have to have insurance, but does it say the amount of insurance, or what your personal insurance has to cover? Is that the level of detail that you see?
Kara Ryan: We see-- it varies. It varies from, for building to building. Sometimes it's very open that, they just have to require condo or co-op policy. Other times it's very specific on, what coverage is, and it goes into, limit requirements.
Carol Ott: It would seem to me that if as a board you're gonna start to require your residents to have insurance, it would seem like you would want to create limit requirements and types of insurance that has to be included in a policy. Otherwise the policies may not benefit the co-op corporation if something happens. Is that true?
Kara Ryan: I would say so, yes. That's correct.
Carol Ott: So sort of running through the categories of a personal insurance policy, I don't really even know what those categories are. Can you give me a sense of what they might be?
Kara Ryan: You'd wanna make sure, obviously, that you have liability. Personal contents, loss of use. A lot of times we see that there's a requirement to have the board as well as the managing agent listed as additional interest. And then also loss assessment would be another thing that the board may want to include.
Carol Ott: What does loss assessment mean?
Kara Ryan: Loss assessment is, say for example, in the event that the association does not maintain adequate coverage for a covered cause of loss. The association could then assess the owners to make up for the deficit. The loss assessment will provide owners with coverage for their share of the assessment up to limit maintained as long as the damage was from a covered cause of loss in their homeowner's policy.
Carol Ott: So if something happened, we did a story once on a co-op building that burnt, severely burnt, and people really lost their apartments. And the co-op corporation didn't have adequate insurance. So the loss assessment on somebody's individual policy would help with that?
Kara Ryan: Yes.
Carol Ott: Okay. Yes. So let's say the co-op board or the condo board has this requirement saying, okay, you gotta have insurance. But there's gotta be a way to actually make sure that they have this insurance and that it's renewed and everything. So how do you do that?
That seems like an enormous administrative task.
Kara Ryan: Yeah. The challenge would be for the association, to keep track of everyone's insurance, especially on the larger buildings. And not only just to reach out and say, Hey, we need proof of insurance, but keep in mind that everyone's insurance is renewing at a different date, so it's an ongoing continuing process.
So you could request the building's insurance on March 1st, and everyone could send it in a perfect world. And then somebody's policy could be expiring on March 3rd, so then it starts all over again.
Carol Ott: No board is gonna track this and no management company's gonna track this. And your company saw a need. .
And came up with a solution. So describe to me how your solution works.
Kara Ryan: Okay, so our solution works as, uh. we, discuss with the board or property management company. And it's all computer based, email based. We ask that the property management company notify the unit owners beforehand.
We just don't come out of nowhere and we request proof of insurance and review each policy based on the requirements set forth in the bylaws and in the house rules. We do this for 30 days, obviously it takes some time for everybody to send in proof of insurance. And at the 30 day mark, we then send the report to property management and the board and say, these are the unit owners that have insurance.
These are the unit owners that do not, or that do not comply with the requirements.
Carol Ott: So basically you've created a database . And then you track the renewal rates in that database. And then notify the shareholders or unit owners and give a report to the board. That's the full circle.
Kara Ryan: Yes. And in fact, just an update with that, we had started with a program outside of our own, and it wasn't tailored the way we wanted it to be for the homeowner. So we actually, in the last six months created our own program, which makes us a lot more user friendly for the unit owners, for us and really focuses on, homeowners insurance.
Carol Ott: So give me a sense of, for the co-op or condo corporation, how does it benefit if all the residents have their own insurance? Is the co-op corporation's insurance cost gonna go down?
Kara Ryan: It would not go down. But benefits, certainly the association being assured that everyone has insurance.
It helps to keep the peace, prevents an uninsured owner from suing the association or another unit owner, which is a big deal. We talked about loss assessment before. If loss assessment is a required coverage the association could raise their property deductible, which will result in a premium savings.
Because then if the deductible is higher, if there was, a situation the board can then assess the residents. So it would offset the cost. And a higher property deductible results in, fewer or less severe claims which results in better loss history, is, going to equal better premiums in the future.
Carol Ott: So basically if you get all your shareholders or unit owners on board, it's not gonna lower your insurance cost. But if there's a problem, your corporation is less likely to get entangled.
Kara Ryan: Yes.
The liability for a lawsuit is there and it, it helps, with some knowing that, that won't happen.
Carol Ott: And have you ever had experience with any of the buildings that your company insures or that have participated in this program where there's been a problem that you could share with us?
Kara Ryan: We had a one one building where unit owners were required per the bylaws to have homeowners insurance that required full replacement value.
And after proof of insurance started to come in, we found that there were many owners that were carrying co-op condo policies which would not cover full replacement value if their unit was to, have it.
Carol Ott: And were these standalone units ?
Kara Ryan: Townhouses. An HOA.
Carol Ott: So give me an example. So if in that HOA, the townhouse had burned down, for instance. That unit owner did not have the kind of coverage you were talking about? What would play out?
Kara Ryan: The unit owner would not be able to rebuild. It would, be out of pocket.
Carol Ott: Would the unit owner likely sue the, or go into litigation with the association?
Kara Ryan: And then not only that, if there was, let's say it was a fire situation and it, went to the townhouse next door and the bylaws say that, you're required to, have insurance, they were uninsured, then, the neighbor is then also suing the association and the board.
Carol Ott: I suppose you could say that if everybody had their own insurance, you could perhaps avoid a Sue- Fest.
Kara Ryan: Yes.
All in all, this does benefit the unit owner as well. I know I'd like to have the proper coverage and know that I could rebuild, my townhouse. A lot of times is people just don't realize.
They just don't know.
Carol Ott: I guess they assume that if they burn down, that the association would take care of it?
Kara Ryan: I guess that's the assumption. Yeah.
Carol Ott: So what would be your takeaway for boards? Is this difficult to implement, to require everybody and then do all the follow up?
Is there something that you would advise other boards regarding this?
Kara Ryan: My advisement would be to just to review your bylaws. And enforce them.
Carol Ott: Well said.
All right. Thank you so much for joining us today.
Kara Ryan: Thank you so much. Thank you, Carol.
