Part 2 of the Lordon Management Insurance Education Series

If your homeowners association recently received its annual insurance renewal and experienced a significant premium increase, you are certainly not alone.

Across California, community associations are facing some of the most challenging insurance conditions seen in decades. Many Boards of Directors are opening renewal proposals only to find premium increases of 25%, 50%, or even more. Others are learning that their long-time insurance carrier has decided not to renew their policy at all.

Naturally, homeowners often ask:

• Why did our insurance increase so much?
• Has our community become a higher risk?
• Did the Board do something wrong?
• Can we simply shop around for a better price?

While every community is different, the answer is usually much broader than the circumstances of any one association.

California’s Insurance Market Has Changed

Insurance companies spread risk among thousands of policyholders. When claims increase significantly across an entire state, insurers must adjust premiums to remain financially stable.

Over the past several years, California has experienced billions of dollars in insured losses from catastrophic wildfires, severe storms, flooding, water damage, and other major events. Even associations that have never submitted a claim are affected because insurers evaluate the overall risk of doing business in California—not just the history of one community.

As a result, many insurance carriers have reduced the number of policies they write in California, while others have chosen to leave the state entirely. Fewer insurance companies competing for business generally means higher premiums for everyone.

Inflation Has Changed the Cost of Rebuilding

Insurance is designed to restore property after a covered loss. As construction costs rise, so does the amount of insurance required to adequately protect a community.

Today’s rebuilding costs are substantially higher due to:

• Increased prices for lumber, steel, concrete, roofing materials, and other construction products.
• Higher labor costs resulting from shortages of skilled tradespeople.
• Longer construction timelines caused by supply chain disruptions and increased demand.
• Rising permitting, engineering, and inspection costs.

A building that may have cost several million dollars to rebuild only a few years ago could cost considerably more today. Insurance companies must account for these increased replacement values when calculating premiums.

Large Claims Affect Everyone

Insurance companies collect premiums from many policyholders to pay the claims of those who experience losses.

Recent years have brought an increase in claims involving:

• Water intrusion and plumbing failures
• Roof damage
• Sewer backups
• Wildfire losses
• Wind damage
• Storm-related flooding
• Liability claims involving injuries
• Construction defect litigation

Because these claims have become more frequent and more expensive, insurance carriers adjust premiums across their portfolios to reflect the increased cost of providing coverage.

Reinsurance Costs Have Increased

One factor many people have never heard of is reinsurance

Reinsurance is insurance purchased by insurance companies themselves. It helps carriers manage the financial impact of catastrophic losses by sharing risk with larger global insurance organizations.

As worldwide disasters have become more frequent and more costly, reinsurance has become significantly more expensive. Insurance companies often pass a portion of those increased costs on to policyholders, including homeowners associations.

Aging Buildings Present Additional Risk

Many California community associations were constructed several decades ago.

As buildings age, insurers evaluate items such as:

• Roof condition
• Plumbing systems
• Electrical equipment
• Fire protection systems
• Balconies and elevated structure
• Asphalt and walkways
• Deferred maintenance

Older infrastructure does not automatically make a community uninsurable, but it may require additional maintenance or improvements to satisfy underwriting requirements.

More Stringent Underwriting Standards

Insurance companies today are asking far more questions before issuing or renewing policies.

They may request:

• Updated reserve studies
• Roof inspection reports
• SB 326 inspection reports
• Tree maintenance documentation
• Loss history
• Photographs of the property
• Information regarding recent improvements
• Confirmation that recommended repairs have been completed

Communities that demonstrate proactive maintenance often present a stronger risk profile to insurers.

Why Shopping Around May Not Produce Lower Premiums

When premiums increase substantially, many Boards understandably ask their insurance broker to obtain competitive proposals.

Obtaining multiple quotes is an important part of the renewal process. However, because many insurance companies are responding to the same statewide market conditions, Boards frequently discover that competing proposals are similarly priced—or, in some cases, even more expensive.

This does not mean a broker has failed to negotiate effectively. It simply reflects the realities of today’s insurance marketplace.

What Can Your HOA Do?

Although no Board can control the insurance market, there are meaningful steps that can improve a community’s long-term insurability:

• Address deferred maintenance promptly.
• Maintain adequate reserve funding.
• Complete recommended inspections
• Repair known safety hazards.
• Trim trees and maintain landscaping.
• Replace aging building components when appropriate
• Require licensed and properly insured contractors.
• Work closely with experienced insurance professionals well before policy renewal dates.

A well-maintained community is generally viewed more favorably by insurance underwriters

The Importance of Communication

One of the Board’s most important responsibilities during insurance renewals is communicating openly with homeowners.

When residents understand that premium increases are part of a statewide—and in many cases nationwide—insurance challenge, they are often better able to appreciate why assessments, budgets, or deductibles may need to be adjusted to ensure the community remains adequately protected.

Although the current insurance environment remains challenging, California’s community associations continue to adapt.

Looking Forward

By maintaining their properties, planning financially, and working with experienced professionals, Boards can help position their communities for long-term stability while continuing to protect one of their association’s most valuable assets—its members’ homes

Next in Our Insurance Education Series

Understanding the California FAIR Plan: Why More HOAs Are Being Forced Into Last-Resort Insurance Coverage

About Lordon Management

For more than 60 years, Lordon Management has partnered with California homeowners associations, condominium associations, and cooperative communities by providing professional community management, financial oversight, maintenance coordination, governance support, and educational resources.

Our goal is to help Boards of Directors make informed decisions that protect both their communities and their homeowners. As the regulatory and insurance landscape continues to evolve, we remain committed to providing timely information, practical guidance, and experienced management to the communities we proudly serve.

This article is provided for general educational purposes and should not be considered legal or insurance advice. Associations should consult with their legal counsel and insurance professionals regarding matters specific to their community.