A community association property insurance policy is worthless if it doesn’t provide a sufficient coverage amount to rebuild every dwelling in the complex if they are a total loss. The stories you hear in the media about unhappy property owners fighting with their insurance company are typically due to under-insurance. This doesn’t have to happen; you should work with your agent to update your policy to reflect current replacement costs.
Sobering Words…
According to The Associated General Contractors (AGC) of America:
- “After years of minimal cost increases, prices of many construction materials skyrocketed from 2004 to mid 2006. Labor costs…have risen at similar rates for construction and for the private sector as a whole.”
- “A combination of steadily rising gross domestic product (GDP) in the United States, an upturn in both residential and nonresidential construction, and demand from fast growing economies such as China and India led to sharp price escalation for numerous construction inputs in 2004. From December 2003 to December 2004 there were increases of 20 – 49 percent in the PPIs for steel mill products, diesel fuel, copper and brass mill shapes and gypsum products.”
- “Damage to oil and gas production facilities caused by Hurricanes Katrina and Rita produced even larger increases in the cost of diesel fuel, asphalt, and plastic construction products. High energy and transportation costs, in turn, pushed up the price of energy-intensive and imported materials, including cement and copper ore.”
Extended Replacement Coverage
While is it important to insure your complex to 100% of its replacement value sometimes market conditions are such that the cost of materials/labor rise significantly above the general rate of inflation. Extended replacement coverage is a specified additional amount of coverage that provides a cushion during these quickly changing market conditions.
Building Ordinance
The concept of insurance is to rebuild or replace your property exactly the way it was. A problem arises when your building is older and new building codes which would prohibit it from being rebuilt as it once was. A replaced building may now require more insulation, double-pane windows and an interior fire sprinkler system.
Changes in building codes can be “slight”… the building code requires the installation of hard wired smoke detectors; to “moderate”… the building code now requires that the building must be retrofitted for fire sprinklers; to “severe”… when the building code now requires residential fire sprinklers (Cost: $15,000 per unit or more).
If your building was converted from an apartment project or is more than fifteen years old, the building code changes might be substantial. It’s best to consult with your community’s Department of Building and Safety to determine what changes might be necessary if your building must be brought up to current building codes.