Florida Condominiums -

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1 A RESOTIRCE FOR FLORIDA CONDOMINIUM ASSOCIATION DIRECTORS AND MANGERS Florida Condominiums - Choosing the Right Insurance Professional for Your Association By: Rob L. Tallent, CIC We have seen extensive changes occur in recent years for Florida condominium associations. These include changes in state statutes, owner/association relations, or most recently, financial strains caused by everything from high property taxes, foreclosures, inflation and lack of investment income throughout the state. But probably the biggest impact of all has been the skyrocketing increases in what is typically Florida condominium association's largest budget item...insurance. Since the highly active hurricane seasons of 2004 and 2005 we have seen insurance premium increases impact many Florida condominium associations to a tune of over 100%l Reasons for this increase can be attributed to many factors, including lack of competitive participation by insurance companies, over regulation, and some insurance agent's failure to be a solutions facilitator, choosing rather to simply be a premium collector. Many times poor association planning, in tackling this issue, can also be a factor contributing to the problem. The fact is that most people, Florida condominium association directors, managers, and unit owners included, see insurance as a necessary evil. It costs a lot (typically the association's largest budget item) and something bad has to occur for it to be put to use. lnsurance, many times, can also be the most complicated budget item to understand. Ultimately association directors and managers want to accomplish one simple goal for themselves and the unit owners whom they represent; to select the best insurance program for their association, at the best price, that will respond when called upon. To succeed in accomplishing this ultimate goal it is vital that associations have a strategy for success, and more importantly selecting the right professional to help you execute the strategy. This article was created to share insight, educate, and dispel some common myths that deter Florida condominium association directors and managers from securing the best insurance program at the best price for their associations. The Mad Race to the Market To understand how to make sure you have obtained the best insurance program for your Florida condominium association at the best price, it is important that you first understand how the insurance market in Florida really works. I am speaking to you in the context of a Florida independent insurance agent, the person responsible for securing the common insurance coverage's needed for most all Florida condominium associations (including property/hazard, wind storm, flood, general liability, directors and officers liability, umbrella liability, crime and workers compensation, to name a few). An independent agent works as a facilitator between the insurance company and you the customer. It is the job of the agent to secure all necessary and relevant underwriting information about your association. Then use this information to paint a positive picture for the insurance company as to why it would be in their interest to provide insurance coverage for your condominium. Sounds simple enough, right? Yet the simple process many times becomes very convoluted and often causes associations to overpay for inferior insurance coverage, or even at times failure to secure coverage at all. I have coined it "The Mad Race to the Market". You see, here is a secret rule in the insurance industry most all insurance

2 companies writing condominium association insurance in Florida mandate, THE RULE - ONE AGENT FOR ONE COMPANY _ THE FIRST AGENT SUPPLYING THE T]NDERWRITING INFO OF YOUR ASSOCIATION TO THE COMPANY BEING THE WINNER (the exceptions being the "Florida State Ran Insurance Company Of Last Resort-Citizens" and "The National Flood Insurance Program"). What this means is the first insurance agent to supply underwriting information about your association to the insurance company, no matter how basic or thorough the underwriting may be, secures that company on your behalf. No other agent then can even talk to the company about your association's insurance needs. The first in...wins, and hence why I have coined it..."the Mad Race to the Market". 'We have seen this mad race cost associations valuable premium dollars and potential insurance coverage that was, many times, never even offered. How? You may ask. Because of the way the rules are set up for Florida insurance agents. There is more incentive for an agent simply to put together the bare necessities of underwriting for a condominium association, it can then be rushed out to the insurance companies to secure the agents spot as "agent of record". Once this is accomplished and the agent has secured the insurance company, knowing that no other agent can talk to the company about your association's insurance needs, many times the underwriting process simply stops. This is the time when it really should begin. lnstead of the insurance carrier having a complete underwriting submission package, showing all of the positive characteristics and aspects ofyour property, and then negotiating the benefits to the insurance carrier to obtain a competitive coverage plan at a fair price, many carriers will only offer an inferior insurance program or no program at all because of the inferior underwriting they received from the agent. Why? Because the insurance agent instead of working for your association was really working to simply win the race to the market. Another term used within the insurance agency world for this is called "monopolizing, or blocking the market", which means that the first insurance agent to submit underwriting information to the company has "blocked" all other agents from using the company. We have seen many cases of "blocking the market" abuse, where companies receive underwriting information from an insurance agent but the agent never even pursues the insurance company to obtain a proposal. The agent simply wanted to block the access of the insurance company to other competitive agents. We see this often when insurance agencies hold themselves accountable to certain insurance company relationships, and through these relationships "steer business" to a particular company or companies for added incentives, bonuses or commissions, forsaking the true needs of Florida condominium associations. The Big Myth: I Need Multiple Insurance Bids from Multìple Insarønce Agents to Insure My Association Receives the Best o'deal" When it comes to getting the best "deal" for any service for your Florida condominium association, most importantly insurance, it makes perfect sense to go out and get multiple bids, right? When any common contracting jobs needing to be done such as landscaping, plumbing, electrical, or cable service, obtaining competitive bids has always been the norm and best approach to insuring your Florida condominium association receives the best'odeal" for the service provided or job completed. But believe it or not, the myth that"i need multiple insurance bids from multiple insurance agents, to insure my association receives the best "Deal", has cost more Florida condominium association's valuable coverage and premium savings then it has helped them. 'Why? Very simply, insurance, particularly in Florida, is completely different compared to any other third party vendor service for Florida condominium associations. While the numbers of insurance

3 agents willing to write insurance for Florida condominium associations number in the thousands, the actual insurance companies themselves who are willing to write insurance for Florida condominium associations do not. In fact they don't even number in the hundreds or dozens. The closer number (as of the time of this article July 2008) is probably right at a dozen insurance companies who are actively participating in writing Florida condominium associations. Last year the number was closer to three, and the prior years before, right after the active storm seasons, we even experience zero private insurance companies willing to offer insurance coverage for Florida condominium associations. With so many insurance agents going to so few insurance companies it is inevitable that all insurance agents will go to the same insurance markets (companies). The days of select insurance agencies receiving "preferred premium pricing" are over. This is due to various issues, such as insurance "bid rigging" to earn special company incentives and bonuses, as well as the massive claim losses companies took on from select agency relationships. It is more prudent today for Florida condominium associations take a different approach in selecting the insurance agent to meet your association's insurance needs. By having the right strategy and approach you can meet your association's fiduciary needs, obtaining the best insurance program at the best price with one insurance agent, the right insurance agent, who brings all the necessary services and resources that lead to success. Choose and Work with Someone You Trust For Florida condominium associations the idea of shopping your association' insurance program to insure you get the best o'deal" does not change, but the approach you use should. As mentioned earlier, most Florida condominium associations take the approach of using multiple insurance agents to "quote" their insurance program. When this occurs many times associations believe... "The more insurance agents involved the better chancefor our association to get the best insurance "deal". With the limited insurance companies participating and way the rules are set up with the "Mad Race to the Market", associations are really in no control and have to hope they get the luck of the draw, and the first insurance agent to take their insurance program to the insurance companies is really the most qualified to do the job for them. Through our experience we believe there is a different way...a better way or methodology associations should use in working to insure the obtain the best program at the best price, and that approach is to...choose AND WORK WITH someone YOU TRUST...ONE INSTJRANCE AGENT, BEFORE TAKING YOUR ASSOCIATTONS INSURANCE PROGRAM TO THE INSURANCE MARKETPLACE (COMPANIES). By working with one agent, this does not mean that your association loses the ability to receive multiple proposals. On the contrary, by choosing the right insurance agent, it increases the likely hood your association obtains multiple quotes and secures the best insurance program at the best price. Your next question is probably, what can I do to make sure I choose the right insurance agent for my Florida condominium association? Our suggestion is for association directors and managers to establish an interview process in order to pre-select the right insurance professional. Through an interview process associations not only have a plan of determining who is the most qualifred insurance agent to meet their needs, but it also allows directors and managers to meet their fiduciary responsibility to its unit owners of completing a true due diligence process in making a final determination. By conducting an organized interview process you take away the madness of "The Mad Race to the Market". Associations, by asking the right questions, can make a confident decision, in an orderly fashion that will allow the right insurance professional to do the best job to meet your association's individual, unique needs. So, during the

4 interview, what questions should association directors and mangers ask the insurance professional? In May 2008, the Community Association lnstitute (CAI) came out with a "Model Form", which associations could use in determining insurance agent qualifications. Remember, you want your insurance professional to be a solutions facilitator...not just a premium collector. As a resource to you we have included below the questions from this "Model Form" along with additional questions, specific to Florida condominium associations, which we suggest you use in the interview process. 10 Questions to ask the ínsurønce ugent in the interview process: l. Are you a "Florida Condo Specialist? What percentage of your clients are community associations? 2. What are you and your companies experience and special designations in working with Florida condo associations? 3. Do you represent ALL markets (insurance companies) that are aggressively writing insurance for Florida condos? 4. How many members are in these associations? 5. What lines of coverage do you regularly provide? And do you have resources to finance insurance premiums? 6. Are you a member of any association industry or insurance related associations? 7. Do you have a claims department and strategy for responding to association catastrophes? 8. Do members of the claims department have a background in association related claims? 9. What types of accident and claims investigations do you provide? Risk Management and/or Loss Control Services? 10. Can you provide three references of Florida condo associations you work with and examples of how you helped them? Trust but Verify Ronald Reagan coined the phrase "Trust but Veriff", and it so important when working with your insurance professional for your Florida condominium association. After the interview process, when your association has picked the insurance professional to go to work to meet your specific needs, it is important to let the agent go out and do their job. Take the necessary steps to make sure they are recognized as your sole "Agent of Record" so that they can properly shop the entire insurance marketplace on your association's behalf. Also, make sure that all necessary underwriting resources are provided, and at the agents disposal. Such resource's include prior insurance policies, claims/loss history reports, appraisals, mitigation premium credit forms, elevation certificates and even in some cases building plans. At the same time, it is also important that timetables and expectations are also set for receiving final proposals, and above all, do not expect transparency...demand it! Make sure that when your insurance professional says they represent all the insurance markets (companies), which are aggressively offering insurance for Florida condominium associations, they bring you back results from each company. Your association should not simply accept verbal transparency, but demand that all results from the insurance marketplace, for all association lines of insurance coverage, whether positive with a quote, or negative with a declination, should be memorialized in writing along with your insurance agent's professional recommendations. By memorializing this process you not only benefit from securing the best insurance program at the best price, but you also have a way of showing the unit owners that you represent how the program was established, allowing you to meet your fiduciary responsibilities as a board member or manager.

5 As mentioned earlier, ultimately, association directors and managers want to accomplish one simple goal for themselves and the unit owners whom they represent. To have the best insurance program in place for their association at the best price, that will respond when called upon. We hope the information we have provided in this article helps you accomplish this ultimate goal for your Florida condominium association. (Rob L. Tallent is a Certffied Insurance Counselor (CIC) through The National Alliancefor Insurance Education and Research. He along with his partner M. Craig Brown, AIP, are both owners of Brown Insurance Services in Panama City Florida. Rob and Craig are Florida Condominium Association Specialist who developed CondShield the first proprietary trademarked insurance, loss control and risk management program designed specifi.cally þr Florida Condominium Associations. Rob and Craig, along with their team, have worked with over I00 ctssociations representing 10,000+ unitowners and the placement of over 81,000,000,000 in total insured values throughout the state of Florida. He can be r eac he d at I I, rtall ent@brownins uranc e s ern i c e s. ne t)