Is Self-Insurance Possible for Community Associations?

Is Self-Insurance Possible for Community Associations?

By Donna DiMaggio Berger / Published January 2024

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Insurance premiums have always constituted a significant percentage of most community association budgets, but astronomical increases in recent years have completely changed the budget landscape. In addition to unaffordable premiums, many insurers are denying full replacement cost coverage, demanding roof replacement for roofs that are still functioning, and/or pushing for complete exterior hurricane protection in order to offer coverage. When asked what factors caused this crisis, insurance experts point to the unprecedented losses over the last few years as well as a lack of reinsurance options. While many legislators are optimistic that tort reform will result in increased insurer interest in the Florida market, that optimism has not yet been echoed by the insurance industry; and relief from high premiums is still not a reality in the commercial/residential policy space.

     Regardless of the factors that created the current insurance crisis in Florida, there is no denying that many residents are not equipped to pay the resulting budgetary increases, and displacement of a large percentage of these people is a real possibility in the near future.

     Many Florida associations are now asking whether they can self-insure, and others are simply buying less coverage than full replacement value.

     The Condominium Act requires all condominium boards in Florida to use their best efforts to obtain and maintain adequate property insurance for the condominium and association property for full insurable replacement cost or similar coverage based on appraisals, which are conducted every three years. Some governing documents also require full replacement value for coverage. 

     The Cooperative Act also provides that a cooperative association must use its best efforts to insure the cooperative property, but it does not impose the standard of full insurable replacement cost based on appraisals conducted every three years. Some cooperative associations do not allow mortgages, which provide those boards with more flexibility regarding coverage decisions as there are no lender rights to consider. Conversely, some cooperative associations are subject to long-term land leases, which require them to maintain a specific level of coverage, and self-insurance may not be an option for those communities.

     The HOA Act provides that a homeowners’ association may create a group of no fewer than three communities; and if the coverage they provide is sufficient to cover an amount equal to the probable maximum loss for those communities for a 250-year windstorm event, then such coverage is deemed adequate.

     Such probable maximum loss must be determined through the use of a competent model that has been accepted by the Florida Commission on Hurricane Loss Projection Methodology. Any such self-insurance group for a condominium must be approved by the Office of Insurance Regulation (OIR) in accordance with Chapter 624, F.S. To date, there has not been a condominium self-insurance fund approved by the OIR. It’s not impossible to imagine such a fund being created, but it would be a challenge as the associations participating in such a group should be spread out geographically to minimize the risk of all participating communities being impacted at one time. Most association boards know their fellow communities but not those in other parts of the state. Associations participating in a self-insurance fund are subject to assessment for damage to other properties but have no way of controlling whether those other properties are well maintained or have any form of hurricane protection on their buildings.

     It is also important to note that self-insuring does not mean “going bare” in terms of one’s ability to repair and/or replace association property in the aftermath of a casualty event. An association struggling to pay high insurance premiums is likely to struggle even more to pay for repairs and replacements out of pocket. If association members push their boards to self-insure, even a unanimous owner vote to do so does not insulate the board members from potential liability should a casualty occur. Board members serve as fiduciaries while the owners do not. Moreover, a lack of coverage may result in mortgage defaults for existing owners and an inability to obtain financing for potential purchasers.

     One solution might be to change the statutory standard from “best efforts” to commercially reasonable efforts based upon commercially reasonable underwriting criteria. Further legislation could also establish specific guidelines on how communities can self-insure if they want to do so. Boards can also work with consultants to determine what level of coverage other than full insurable replacement cost is prudent based on forecasting models.

     If you live in a single-family home which is not subject to a mortgage, rolling the dice by not purchasing windstorm coverage might be a risk you’re willing to take. However, serving on a condominium, cooperative, or HOA board where you are making that decision on behalf of other owners and are subject to statutory requirements is a different matter entirely. The answer to the question posed in the title of this article is complex and requires considerable input and guidance from your community’s professional advisors.

Donna DiMaggio Berger, Esq.

Shareholder, Becker

     Donna DiMaggio Berger is a shareholder in Becker’s community association practice in Ft. Lauderdale, Florida. She is a member of the College of Community Association Lawyers (CCAL), a prestigious national organization that acknowledges community association attorneys who have distinguished themselves through contributions to the evolution or practice of community association law and who have committed themselves to high standards of professional and ethical conduct in the practice of community association law. She is also one of only 190 attorneys statewide who is a board-certified specialist in condominium and planned development law. For more information call 954-987-7550, email, or visit