RISK MANAGEMENT AND INSURANCE FOR COMMUNITY ASSOCIATIONS: CAI believes that an effective risk management program can best be achieved if associations and their governing boards work with recognized community association professionals. CAI further believes that a comprehensive association insurance program must focus on meeting a broad range of legal and lender requirements while recognizing that the governing board is the trustee of the owners in insurance matters. This program (collectively, risk management and insurance) requires that risks of loss be fully evaluated and that funding for such loss (whether by commercial insurance or self-insurance) must be completely analyzed.
Adopting a comprehensive risk management policy and adopting a policy regarding the purchasing of comprehensive insurance are both vital if a community association is to minimize the adverse consequences of accidental loss; maintain the continuity of the association as a business organization; and assist homeowner members in protecting their most important asset – their homes. Both programs need to be thought of as one program. More detailed information is contained in the two-part set titled Community Association Insurance and Risk Management, available in the CAI Press at caionline.org/bookstore.
There are six steps to establish a risk management program:
- Identify Exposures to Loss: There are four exposures to loss – property, liability, net income and personnel.
- Evaluate the Use of Risk Control and Risk Financing: Risk Control may eliminate or minimize losses. Risk Financing includes purchasing insurance, funding for deductibles and self-funding for small losses.
- Interrelationship of Risk Control and Risk Financing: Recognition of the important intersection of Risk Control with Risk Financing and proceed with an understanding of the importance of evaluating both together.
- Implement Risk Control and Risk Financing: This requires the board to work with a range of recognized association professionals — attorney, manager, CPA and insurance agent.
- Monitor and Improve: These five steps need to be periodically evaluated in the same manner that the board reviews its financial and similar operations on a regular basis.