Insurance Crisis Threatens Condos & Townhomes

Photo byAgustin LaraonUnsplash

Attention townhome and condo owners, and prospective buyers: a critical situation is unfolding with property insurance. Homeowners Associations (HOAs) are facing unprecedented challenges with property insurance, leading to a potential financial crisis for many owners.

Colorado has experienced a spike in hail and wind damage claims over the past decade, rendering it an undesirable market for insurers. The fallout has been severe. Numerous insurance carriers have withdrawn from the state, while others have escalated premiums and deductibles to unsustainable levels. Some HOAs have seen their insurance premiums quadrupled, or deductibles swell by hundreds of thousands of dollars.

The implications for homeowners are dire and could spell financial disaster! HOAs are cornered into making difficult decisions—either raise monthly dues to staggering amounts, some exceeding $1,000, or opt for high deductibles or self-insurance strategies, which can lead to significant out-of-pocket assessments for owners.

The stark reality of this insurance crisis has already impacted many, with condo and townhome owners in storm-damaged areas facing personal assessments ranging from $10,000 to $20,000.

A small glimmer of hope lies in "Loss Assessment Coverage" found in individual condo policies, which offers some reimbursement for owners' assessments due to storm damage. However, this coverage is typically capped at a few thousand dollars unless additional coverage is purchased.

In the most severe cases, some developments are unable to secure any insurance coverage, leaving owners to find exterior coverage for themselves—a near-impossible task for some communities.

"I can’t write roof coverage for someone on a lower floor of a condo building," explains Brian Burns, co-owner of Compass Insurance Group. "That coverage doesn’t exist."

Burns adds, "There's a surge in calls from owners desperate to insure the exterior of their units independently. While townhomes are somewhat easier to insure due to the distinct separation of roofing, the overall challenge is difficult."

In essence, navigating this insurance crisis is complex and unavoidable. Ownership of a condo or townhome now carries the burden of increased costs. And the lingering effects of this crisis may reverberate through property values. After all, the prospect of purchasing an under-insured home at market rates is far from appealing.