By Dave Kolodzik, CRVS, PPIA / Published April 2022
A major issue that associations have in an inflationary economy, like the one that we are currently experiencing, is being underinsured. In Florida, construction costs (labor & materials) have been averaging between an increase per year of three to five percent over the last decade. However, 2021 saw increases of 10–12 percent alone (depending on the location in the state).
Many people do not realize that it is the insured’s responsibility, not the insurance company’s responsibility, to set the correct replacement amount. In fact, it says this in the insurance policy under the “insure to value” clause that the insured is acknowledging that he or she is insuring the property to its full replacement value.
The State of Florida recognized that associations being underinsured was a major problem. In 2007 the Florida Legislature passed a law making it mandatory that all residential condominium associations have an insurance appraisal (replacement cost valuation) conducted at a minimum of every 36 months, Florida Statute 718.111(11)a. However, in the current economy, that is not nearly often enough.
Over the last few months some insurance carriers are starting to require associations to have annual insurance appraisals done in order to make sure that they have the correct amount of coverage. There has also been talk coming down from Tallahassee that the statute might be amended to change the legal requirement of the insurance appraisals from every 36 months to every 12 months. This is from both the current inflation situation as well as the aftermath of the investigation into the collapse of Champlain Towers in Surfside.
In conjunction with insurance appraisals, associations should also take their reserve balances (reserve studies) into account with the way costs are increasing.
Dave Kolodzik, CRVS, PPIA
If you have any questions regarding insurance appraisals (replacement cost valuations) or reserve studies, please feel free to call Expert Inspectors at (886) 480-8236.