Community Association Risk Management

July 20, 2021

Community associations are an integral part of the home ownership experience for many Americans. These associations are tasked with maintaining properties to established standards, resolving property owner disputes, and minimizing losses. Risk management, then, is a critical aspect of the community association role. In this guide, we will explore community associations insurance and how it forms the foundation of a more comprehensive risk management program for community-oriented associations across the country.

Community Associations 101

With over 370,000 associations in the United States, representing over 50% of all owner-occupied houses in the country, community associations are groups formed by members of a specific geographical area. They are often comprised of homeowners elected in a formal leadership structure. Community associations may go by names like:

• Homeowners’ associations (HOAs)
• Neighborhood associations
• Condominium associations
• Master associations

No matter what they are called or how they are structured, these associations serve one common purpose: to protect the rights, property, and financial interests of property owners. Membership in an association may be mandatory for homeowners of a particular development, and dues may be collected to pay for common services like legal services, maintenance, and landscaping. These associations are characterized by a set of rules, both for homeowners and for the operation and responsibilities of the association itself.

Community associations insurance is a critical aspect of the role these associations play in property owners’ lives. This insurance protects against a broad range of liability risks. Developing a risk management plan around community associations insurance ultimately works to minimize or eliminate unexpected losses.

The Risk Management Plan for Community Associations

To develop a risk management plan for property owner groups, community associations have several factors to consider. These include:

• Identifying applicable risk exposures, such as properties, liabilities, personnel, and income.
• Evaluating risk control and/or risk financing to mitigate potential losses. Risk financing includes the purchase of community associations insurance and other insurance protections.
• Understanding the relationship between risk control and risk financing.
• Implementing risk control practices.
• Monitoring risk management practices and making improvements as needed.

Developing a risk management plan for a community association may require the assistance of professionals such as attorneys, property managers, insurance agents, and accountants or tax professionals. Community associations are particularly susceptible to liability risks, often brought in the form of legal claims by homeowners in the property being managed. A single legal challenge may result in steep expenses, including attorney defenses and judgements against the association. A community associations insurance policy helps to cover the costs of legal claims and many other liability exposures.

The Role of Community Associations Insurance

In addition to protecting associations from the risks of legal claims, community associations insurance also provides comprehensive coverage for such factors as:

• Property damage
• Catastrophic losses
• Personal injury claims
• Theft, fire, and vandalism
• Professional mismanagement or conduct claims

Optional coverages may be available, including hired and non-owned auto insurance for associations that utilize vehicles owned by the individual members, equipment breakdown coverage, and employee benefits liability. Each community association is different, and each must determine what risk exposures they face. With the help of an experienced insurance professional, community associations insurance can be tailored to the unique needs and risks of an association. With this insurance, and with a risk management plan to support insurance protections, community associations may continue to perform their role of protecting homeowner investments from losses. ◼