Insurance Is Becoming a Bigger Part of the Condo Conversation
Insurance has always been an important part of condominium ownership. But today, it is becoming a much bigger part of the conversation around a property’s overall financial health.
For condominium associations, the challenge is not simply the cost of insurance. Premiums, deductibles, coverage terms, and availability can all affect the association’s budget and its ability to absorb an unexpected loss.
Community Associations Institute identifies insurance affordability and availability as a significant pressure for associations, while recent industry reporting shows that insurers are continuing to adjust coverage and underwriting practices in response to property risk.
Higher Costs Can Affect the Entire Association Budget
When insurance premiums increase, the impact extends beyond the insurance line item in the annual budget. An association may need to increase assessments, reduce spending elsewhere, or reconsider how much funding is available for reserves and capital projects.
Higher deductibles can create another layer of exposure. A policy with a lower premium but a substantially higher deductible may leave an association responsible for a larger share of the cost when a covered loss occurs.
In some markets, insurers are also using percentage-based deductibles and other policy provisions that shift more of the loss burden to policyholders.
That makes the relationship between insurance and reserves increasingly important.
Insurance and Reserves Should Not Be Viewed Separately
A strong financial plan considers both the recurring cost of maintaining insurance and the association’s ability to fund major repairs and replacements.
Fannie Mae’s current project review requirements, for example, specifically consider the association’s budget, replacement reserves, deferred maintenance, and insurance documentation when evaluating condominium projects. Fannie Mae also recognizes that a current reserve study can be used in certain circumstances to demonstrate that reserve funding is adequate.
The takeaway for boards and property managers is straightforward: insurance decisions should be considered as part of the property’s broader financial picture.
A policy renewal should prompt more than a review of the premium. Associations should also understand what has changed in coverage, deductibles, exclusions, and the amount of risk the association is retaining.
What Should Associations Be Watching?
As insurance continues to influence condo finances, boards should be asking:
- Has the association’s premium or deductible changed significantly?
- Does the current policy still provide the level of coverage the property needs?
- Could a large deductible create a financial burden for the association?
- Are insurance costs affecting reserve contributions or planned capital projects?
- Are the property’s maintenance and reserve plans keeping pace with the expectations of insurers and lenders?
Insurance is no longer just an annual renewal item. It is increasingly part of the larger conversation about whether a condominium association is financially prepared for the risks it faces today—and the costs it may face tomorrow.
Reserve Studies Are Getting More Attention
For many condominium associations, reserve studies were once something that lived in a file cabinet until budget season. That is changing.
As buildings age, construction and repair costs increase, and lenders place greater emphasis on the financial condition of condominium projects, reserve funding is receiving more attention from boards, property managers, owners, and lenders alike.
A reserve study is more than a list of future projects. A well-prepared study connects the condition and remaining useful life of major components with estimated replacement costs and a recommended funding plan.
Fannie Mae’s current project standards specifically identify reserve studies as important project documentation and outline expectations for the components, condition, useful life, costs, existing reserves, and funding plan addressed in a study.
The Question Is No Longer Just “Do We Have Reserves?”
The more important question is whether the association has enough reserves for what the property is actually going to need.
A healthy reserve account today does not necessarily mean an association is adequately funded. A building could have significant cash in its reserve account while still facing a funding gap if major components are approaching the end of their useful lives.
Roofing, siding, windows, elevators, paving, mechanical systems, structural components, and other shared assets can represent substantial future expenditures. A reserve study helps associations look ahead rather than reacting when a major expense is already due.
That distinction matters because deferred maintenance and underfunding can create a cycle: repairs get postponed, costs increase, emergency funding becomes necessary, and owners eventually face larger financial demands.
Reserve Studies Are Also Becoming More Relevant to Lending
The financial condition of a condominium project can affect more than the association’s own budget.
Fannie Mae’s Full Review requirements currently call for lenders to evaluate whether an association’s budget provides adequate funding for replacement reserves and deferred maintenance.
A reserve study may be used in place of the standard reserve calculation when specific requirements are met, including demonstrating adequate funded reserves and meeting Fannie Mae’s reserve study standards.
That means a reserve study can play a role in how a property’s financial condition is evaluated during a lending review.
For boards and property managers, the goal should not simply be to produce a report when someone asks for one. The greater value comes from keeping reserve planning current and using it as an ongoing financial planning tool.
A Strong Reserve Plan Looks Ahead
The best reserve planning answers a few basic questions clearly:
- What major components does the property have?
- What condition are they in?
- When are they expected to need repair or replacement?
- What will those projects likely cost?
- How much has already been set aside?
- Are current contributions sufficient?
As those answers change, the funding plan should change with them.
A current reserve study gives an association a stronger foundation for budgeting, capital planning, owner communication, and lender review.
In an environment where the financial condition of condominium properties is receiving greater scrutiny, that forward-looking perspective is becoming increasingly important.
Special Assessments: What They Can Tell You About a Property
Hearing that a condominium association has a special assessment can immediately raise questions.
- Why was it needed?
- Does it mean the association is financially unstable?
- Will owners have to pay more?
- Could there be another assessment in the future?
The reality is more nuanced: a special assessment is not automatically a red flag.
Sometimes a special assessment reflects responsible decision-making.
An association may need to address an unexpected repair, accelerate a major capital project, respond to damage, or cover a cost that was not fully anticipated in the regular budget.
The important question is not simply whether a special assessment exists. It is why it was necessary and what it tells you about the association’s financial planning.
Look at the Reason Behind the Assessment
A special assessment for a clearly identified capital project is very different from an assessment being used repeatedly to cover routine operating expenses.
The details matter.
Boards, property managers, lenders, and prospective buyers should consider what the assessment is funding, whether the project is necessary, how much has been collected, and whether the association has a plan for completing the work.
It is also important to understand whether owners are current on the assessment. Under Fannie Mae’s current Full Review requirements, no more than 15% of a project’s units may be 60 days or more past due on a special assessment.
That makes special assessments relevant not only to individual owners, but also to the broader financial evaluation of the project.
A Special Assessment Can Reveal a Lot About Reserve Planning
One of the most useful questions to ask is whether the expense could have been anticipated through better reserve planning.
If a major component reaches the end of its useful life and the association has a current reserve study that anticipated the project, a special assessment may simply reflect a decision to address a funding gap or accelerate work.
On the other hand, repeated assessments for predictable capital expenses can raise questions about whether the association’s reserve contributions are keeping pace with the property’s long-term needs.
A reserve study is designed to help associations evaluate major common-area components, their remaining useful lives, estimated repair or replacement costs, existing reserve funding, and recommended contributions.
The Assessment Is Only Part of the Story
A special assessment should always be viewed within the context of the property’s overall financial condition.
Consider the association’s reserves, regular assessments, outstanding projects, maintenance needs, insurance costs, delinquency levels, and long-term capital plan.
One special assessment does not tell the whole story.
In fact, a well-communicated assessment that funds necessary work can sometimes demonstrate that an association is willing to address problems rather than postpone them.
The goal is to understand the financial story behind the assessment.
- What prompted it?
- What is it funding?
- How is the association paying for it?
- What does it say about the property’s long-term financial planning?
Those questions can provide much more insight than the existence of a special assessment alone.
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