Skip to main content

To minimize the adverse consequences of accidental loss, maintain continuity of the association, and assist members in protecting their most important asset – their homes, it is necessary to adopt a comprehensive risk management program.

To accomplish this, governing boards must work to meet a broad range of lender and legal requirements as trustee of the association, all while evaluating the risk of loss and the funding for such loss.

5 Simple Steps

In order to establish an effective risk management program for your homeowners association, it is necessary to implement the five steps below:

  1. Identify Exposures to Loss (liability, net income, property, and personal).
  2. Evaluate the Use of Risk Financing, including purchasing insurance, self-funding for small losses, and funding for deductibles.
  3. Evaluate the Use of Risk Control, which may minimize or eliminate losses.
  4. Implement Risk Control and Risk Financing by working with a range of recognized association professionals, such as the community manager, CPA, insurance agent, and legal counsel.
  5. Evaluate these steps by monitoring and improving, if necessary, by working in the same manner used to review operational functions on a regular basis.

Review Requirements

When obtaining insurance, the board should regularly review insurance requirements based on:

  • governance requirements (CC&Rs, internal policies, declaration, related guidelines, etc.)
  • certain local, state, and federal laws, such as building ordinances, workers compensation, and flood insurance
  • indemnitor/indemnitee obligations
  • lender standards

When working with association professionals to develop a risk management and insurance program for your HOA, the governing board will aim to minimize adverse financial consequences related to accidental loss while helping homeowners protect their investments.

A comprehensive risk management program should be based on the risk management principles and requirements outlined above. By coordinating a risk management program in preparation of the association’s annual budget and reviewing on a regular basis, as well as conducting annual insurance loss runs, your association can reduce risk and protect the association and its members.