New law allowing self-insurance for condos

can be risky, experts warn

Article Courtesy of The Sun Sentinel

By Joe Kollin

Published July 16, 2007

   

Don't count your insurance savings just yet, experts warn owners in condo, co-op and homeowner association communities.

The state this month began letting associations form a self-insurance fund to protect against windstorm damage. It also allows three or more associations to pool their resources to buy windstorm insurance, but the insurance must meet specific minimum requirements.

The new law, adopted by the state Legislature and approved by Gov. Charlie Crist, was pushed as a way to control skyrocketing insurance costs after the hurricanes of 2004 and 2005.
But some say taking advantage of it may not be a good idea.

"It will be tougher to get insurance this way than the old way," Norman Blanco said Friday after learning details of the measure.

Blanco is president of the Village of Arista Park, an 86-unit homeowner association in Davie, and president of a neighborhood association with 965 units.

"It's very attractive to think of cutting rates by half or a quarter, but you've got to consider, especially if you are close to the water or in a high-risk zone, if it's worth it," said Tom Zutell, a spokesman for the state Office of Insurance Regulation.

Self-insurance is both riskier and more complicated than the traditional alternative, he said. If a fund doesn't have enough money for the claims it is obligated to pay and doesn't have enough of the required reinsurance, "there is nothing left except to foreclose" on their units, he said.

Self-insuring isn't the same as stashing money away for a rainy day, he added. The state approves and regulates all self-insurance funds and they must comply with a long list of regulations. The state also assesses self-insurance funds to pay claims for other funds or insurance companies that can't meet their obligations.

"My advice is to do as much homework as you can with information we have on the Internet and then contact a reinsurance broker who can go over the potential pitfalls," Zutell said.

Reinsurance is insurance for those who provide insurance, whether an insurance company or self-insurance fund.

No requests for either pools or self-insurance have been filed yet, Zutell said.

Leaders of organizations that represent associations and unit owners offer a word of caution.

"Self insurance is good, but it can be dangerous," said Jan Bergemann, president of Deland-based Cyber Citizens for Justice. "If there are not enough funds, who pays in case of damages?"

"Because of the risks involved, we are advising that associations not join any self-insurance fund without first reviewing the details and risks with a knowledgeable and experienced insurance professional," said Yeline Goin co-executive director of the Community Association Leadership Lobby.

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