 Welcome to the Condo Insiders show. I'm your host, Cheryl Franklin, and today we will continue our discussions in the world of rental property management. One of the most important aspects of condo ownership is insurance. Today, returning to the show is Krista Stadler, broker in charge for a Social Hawaii Rental and Sales division, and also joining us today is Brandon Keenan with Atlas Insurance to discuss navigating the world of condo insurance. Welcome back, Krista. And welcome, Brandon. Thank you. I think we'll get started with you. Why don't you tell us a little about yourself? Well, I recently returned to Hawaii after being gone for 26 years. I built my own insurance agency in the Pacific Northwest, Southwest Washington, Vancouver, Washington. And upon the news of the birth of a granddaughter, it was very important to me that I return and spend time with her. I hear so many grandparents talk about not being able to spend time with their grandchildren. And I thought, you know, we have this opportunity. Let's do it. And so my wife's born and raised on the island, and so are my two boys. And so, yeah, I mean, it was a natural decision for us. So we decided to return. I was fortunate enough to find my way into a great company with great corporate culture. And with the same core values as I also possess. That's a big deal. That's great. All sounds really good and exciting. Yeah. Absolutely. Yeah. So I'm going to ask you some questions, or I'll ask you a question. OK. So for an investor that hasn't actually purchased a property yet who's looking at different options and considering which complex to purchase in or if it's going to be a house or a condo, do you recommend they identify the property first or talk to you generally about what they're typically going to be paying if they're maybe trying to put some kind of financials together? It really depends on where the property is going to be located. So there's a lot of factors involved in insurance, especially here on the island. Matters how far it is from the coastline. It also matters whether or not it's in an earthquake zone. Also, we actually have a lot of microclimates here in Hawaii where wind gusts actually exceed the wind in other areas when we're experiencing hurricane weather. And so yes, those are important things to note. And lava flows in Kona. And we have lava flows in Kona. Or a big island, yeah. Yeah, that can be a challenge to be sure. So having that knowledge up front allows me to direct the client as far as what markets are going to be available to them. Knowing the markets is very important. Having a good relationship with those underwriters and helping them understand what it is that you're the risk that you're presenting to them. And so the more knowledge you have, the better you can address the concern. And you can go to that market and you get the appropriate pricing. OK. So to identify at least the area generally, if not the specific property. That'd be very helpful. The age of the property, how well maintained it's been. Yeah. Usually you get that with the property. Right. Good stuff. That's a lot to think about and consider, which kind of segues into my next question. The types of insurance that are available to condo owners, I assume would lend itself to everything that you just said, pretty much, yeah. It really does. It depends on where it's located. And then a number of different factors. The policies that are specifically designed for condo-making owners to help dovetail with the master association policy. And that would be the HO6. So that's a technical term for a condominium owner's policy. Which is different from rental properties. That's different from the tenant policy. There is the HO6 policy for the condo owner. And then there is a HO4. Would be the policy that the renter would have. And I highly recommend that too, by the way. You're talking renter's insurance, basically. Correct. Right. Absolutely. Yeah. It's not that expensive. It covers so much. I'm like, amazing. It really does. So what it does is two-fold. So you're a unit owner and you have somebody renting your unit. If you have a renter in there and he has his own renter's policy, two things happen. Number one, your policy is not going to cover his personal belongings. So water comes from the unit above. Those scenarios happen. And it damages all his personal items or her personal items. Now if they didn't have a renter's policy or an HO4, that would be no coverage for that. And in addition to that, while that damage is being remediated or mitigated, the renter can't live there. If they had a renter's policy, we would also provide income for them to live somewhere else until they could return to the fully mitigated unit. Depending on the source of the damages, can the master policy also provide those type of accommodations? The master policy would not. The master policy would only take care of the structure. So walls, ceilings, and floors. So the HO6 for their cabinets, their tile, their carpeting, all those kind of things, and their furnishings? I'm talking an owner-occupied property. Right. So at this point, the master policy will take care of the walls, floors, and ceilings. OK. In this case, it would also take care of, because of 514b, it will take care of the unit as built. Prior to 514b, there were a lot of bare wall policies out there. So basically, you'd walk into your unit that has been damaged, but now fully mitigated. And all you would see is subfloor, drywall, and that's it. Everything else would have to be brought in. In this scenario, with 514b, though, they're going to have an as-built. So whatever the cabinets that were there, the fixtures, and all that, they'll pay for that. The HO6 would take care of any of those upgrades. So now you've got granite tile, or granite floors, or countertops, you've got hardwood cabinets. So if you had, say you just pretend, you had just remodeled your property six months before, and it was built in 1972. And you'd put $20,000 into your kitchen, beautiful kitchen, and it gets completely destroyed, and it has to be completely redone. So whatever was there in 1972 is what the master policy is going to cover, or give you the funds for. Correct. So they're going to earmark X amount. Correct. But do you have to have proof that you just made all these remodels so that your insurance? That's a very good question. Thank you. So here, I try. You do the good job. So your insurance company, I'm just asking, because I've seen owners take an opportunity to remodel when they have an event like this happened. I've seen that as well, yeah. But I feel bad for the folks that just spent $20,000, $25,000 a few months before, and then they're having to redo the whole thing. Yes. Yeah. So this is something that I don't preach, but I definitely make a point of, is that is documentation. So if you're going to go through a renovation, hopefully you have a good relationship with your insurance agent. And you're saying, hey, I just added $80,000 worth of value in upgrades to my unit. That allows the agent then to take that into consideration at that point advised. I like photographs. Hopefully you've used licensed bonded contractors. Before the event even happens. Before the event. When you're doing the upgrades. When you're doing your upgrades. And then you've got all this documentation. So think of it this way. The insurance company is not really saying, we don't want to pay your claim. We're saying because the claims adjusters have someone else to answer to as well. So you're helping them help you. And they want to write this huge check for you, but they have no evidence to supply their manager to say, look, I don't want to cut this giant check. But if you give all this information to him, he gives that to his supervisor. Everything gets handed. So in that case, that's a good deal. Yeah. So that makes a lot of sense. Very important. So regarding insurance for condo, is there a difference in the policy if you have it tenant occupied versus owner occupied? It would be. Actually, it'd be the same policy type, but it would be endorsed for that specific use. And the reason is the standard H06 is going to allow for additional living expense. So if you live in the unit, and now you cannot because of the damage, then we're going to give you additional living expense to go live somewhere else. If you have a renter in there and that renter can't live in there, you're also now losing income from that renter. So when we endorse the policy, then when that renter can no longer live there because of the mitigation, then we're going to pay you those rents that you would have otherwise received. Really? Does it offer any additional liability for having a tenant in place versus the owner? I mean, in other words, would you typically have a higher liability? That's a good question. That is a good question. Well, I would say in all fairness, you can require your renter to have an H04. And I look at that from an insurance perspective as a firewall. You don't have to claim on your policy. You don't have to pay your deductible. And now you've got an H04 person, a renter, who's damaged the unit or has caused something to damage the unit. The other thing that that H04 policy is going to do is going to provide liability coverage. So what if that renter decided he was going to make dinner or she was going to make dinner and forgot that they left the tub running? And it overflows and it floods the unit below. Now, that gets a little stickier. And so if the renter has a proper H04, then that renter's liability will extend to that. So primarily, the master policy will take care of the floor ceilings and walls, right? And then the H04 liability would then take care of the balance of issues that we like to have. Sounds like that's a good requirement for rental managers to have. For $10 to $15 a month, it's a no-brainer. But it's not always a requirement. It should be. It absolutely should be. But in that same scenario, let's say the tenant didn't have an H04 policy, then who's on the hook for that overflowing tub? That's a good question. So the master policy, the H06 would take care of that. So it would take care of the balance of what the master policy did not. And then what ends up happening is any balance of liability that's left over, the H06 policy types will subrogate against each other. But in a perfect world, H06, H04. Master policy, H06, H04. That would be a perfect world. Good deal, good deal. Is there a difference between additionally insured and additional interest? There are. And I have a preference of the two. Additional interest, what that does is in the event you have an H06 and you're renting it out to someone, and you've made it a requirement that they carry a renter's policy. Well, I've seen the scenarios where they go and get the policy, they provide you, the H06 owner, a binder, says, look, I got insurance, and then they don't make the next month's payment. So as an additional interest, you would then be notified if the policy went out of force. Oh, got you, got you. And then you could address that directly with the H04 individual. OK, that is so interesting, because I've heard so many, because I do the rental management. So we require our homeowners to have us listed as additional insured on the COI certificate of insurance with certain coverage, different for homes than for condos higher for private homes. And I've always, and I believe I've been informed incorrectly, but that additional interest assumes that you have a financial interest in it, whereas additional insured is more from a liability standpoint, but that doesn't sound like it's the case. Actually, that is the case. So yeah, like a lien holder or something like that. That's just a different type of requirement. As a property manager, listing yourself as an additional insured does the same notification, but it also gives you another firewall of protection in the event of a loss, because you are now an insured on that policy. So do you continue to recommend we request to be additional insured? Like that one the best. And what if a company we're dealing with, and you may not know the answer to this, but what if they will not do that? They'll only do additional interests. That's it. That's a very good question, another point. It's also a good place for a break. So let's just take a break and come back and continue the discussion. So yeah, good stuff. Please come back and join us. Thank you. Aloha. I'm Keisha King, host of At the Crossroads, where we have conversations that are real and relevant. We have spoken with community leaders from right here, locally in Hawaii, and all around the world. Won't you join us on thinktechhawaii.com or on YouTube on the Think Tech Hawaii channel. Our conversations are real, relevant, and lots of fun. I'll see you at the Crossroads. Aloha. Aloha. I'm Winston Welch, host of Out and About. It's a show that we have every other Monday on Think Tech Live here. We explore a variety of topics that are really interesting. We have organizations, events, and the people who fuel them in our city, state, country, and world. We've got some amazing guests on here, like all the shows at Think Tech. So if you want to catch up on stuff, tune into my show every other Monday and other shows here on Think Tech Live. It's a great place to learn about stuff, to be informed, and if you have some ideas, come on my show. Let's talk about it. See you later. And Aloha. Aloha, welcome back, and thank you for joining us. I think we're just going to jump back in where we left off and give you an opportunity to kind of expound on Krista's question. Yeah, so we took a break there, and I'll let you keep going. I'm trying to remember where I left off. Additional interest versus additional. Yeah, I like the idea of additional insurance. And if a company won't allow a particular insurance company, we contact them and say, listen, it states in our contract, we need to be additional insured, and they're like, well, I'm sorry, we don't do that. Some of them have actually told us, it's the same thing. Well, it's not, and you know that. And so I would say to you that at that point in time, it's important to maybe seek out the relationship with that agent and get a policy in place that meets your guidelines. Because they have a legal obligation. And you're in a contract with them. So therefore, an insurance policy also a legal contract. So it maybe suggests to the owner that they need to find another agency to work with to provide what they need to us. It says a lot about the type of policy that they purchased. Oh, interesting. And so in a way, you may have a lesser policy there, and you're more interested in making sure that they have the proper policy in place. Absolutely, and I would hope they would as well. But sometimes I think it's education. It is education. You know, yeah. So good stuff to have another question. Multi-policy discounts, is that common? And do you typically try to work with your clients and suggest different policies that they can put in place and how that's going to fit them? Actually, I appreciate you asking that question. I come across it all the time. And when I say all the time, when I'm taking a look at somebody's insurance profile, I happen to notice that some people, and again, it is back to education, they have their homeowners with one company, they have their automobile with another company, and they have their, so the problem becomes severalfold. Number one is the difference in policy language. So what you don't want to do if you find yourself in a claim, you don't want to have those two different companies playing off each other, saying it's not our responsibility, and when you have all those contiguous with the same company, you do get multi-policy discount, which makes a big difference, but you also get contiguous policy language. Well, there's no gaps, or fewer gaps. And so... So like a car that is in a garage that somehow catches fire, I don't know, let's make it up something. So then I guess I could see your point. Is it the homeowner is responsible for that car, or is it the car insurance? You're kind of getting into that, right? Yeah, so in that scenario, and this is something that I always like to express, is if a unit can have a policy, it should have a policy. So if this guy has a, let's just say it's a non-op antique car that he's gotten his garage. And so it doesn't, he drives it once a year maybe, and he thinks, oh, I don't need a carried policy on that, I'm not driving it. But the reality is in your scenario, if that garage were to burn, that would be an uncovered vehicle. So that vehicle would need to have its own policy. So the homeowner's insurance wouldn't cover the vehicle? It wouldn't cover the vehicle. Interesting, okay. Wow, that's important for the antique owner to know. If it's valuable. Yeah, if it's valuable. Yeah, sometimes that's their babies, right? That kind of runs itself to my next question. How much insurance does an owner need? I imagine there's a lot that goes into play when you're helping an owner decide exactly how much coverage they need, depending on whether they have antique cars or granite and jewelry and things like that. Absolutely, so I lead with education. So I wanna know, I always tell my client, look, the whole purpose of this meeting is for me to get to know a little bit more about you and for you to get to know a little bit more about me. The more I know about my client, the better I can help them. So in your scenario where it runs the gambit, if you got a high earner with a high value home and jewelry and art and beautiful cars, you wanna make sure that, again, you wanna place them in the proper market and you wanna make sure that you've properly assessed the risk for them. So then you put those policies into place. That person's obviously, well, would need more liability coverage because they have a greater exposure. So then I would recommend sharing more liability like an umbrella, something above the basic limits that the underlying policies would carry. Like an umbrella. Like an umbrella. We define our... We can define an umbrella. That was one of our questions. Yes, that was my next question. So what an umbrella does is it takes over where the underlying policies leave off. So it covers the home, the auto, if you have golf carts, boats, all that. So it basically just like an umbrella, it covers you completely. So those limits drop down to the underlying limits. So back to your earlier comment about having multi-policies. It's also good to have the umbrella because there's very few companies out there that will write a standalone umbrella. And when they do, there tends to be policy language issues about what they're gonna cover. Whereas if everything's contiguous, then everything dovetails with the other. So an underlying limit requirement, typically for an umbrella would be anywhere from a split limit of $250,000 to $500,000 or $0.5 million combined single limit. And then the umbrella would come down to that and then you would have a $1 million, $2 million, $5 million, $10 million, whatever you need to protect. And then the deduction amount for any of those different levels, is that something that's, can you say, I only want a $1,000 deductible or I want a $10,000 or do you pretty much dictate that to the client? That's a good question. Yeah, you know, the deductible limit typically becomes the level that the insured wants to self-insure. So that's the portion that they're responsible for. What I've found typically is there's not a lot of savings in the higher deductible limits. So it doesn't always make sense. For a homeowner, I like to see a $1,000 deductible. Yeah, seems right. I like in, so then we get into talking about frequency versus severity. So I look at deductibles as a form of deterrent but also as a level of self-insurance. When I say deterrent, I mean like, I look at deductibles like cookie jars. The closer that cookie jar is, the more likely you are to reach your hand into it. Oh, okay, I can get that. So when I tell people it's like, you know, it's not person- Yeah, yeah. It's not for if the neighbor kid throws a baseball through your window. That's not what your homeowner's insurance is for. It's for if you have some form of catastrophic loss. So that would otherwise damage you financially. So that's when it's called a transfer of risk. And so you're like, okay, Mr. Insurance Company, I'm gonna tap out here and you're gonna come in and save the day for me. Yeah. Do you get dinged for, let's just say you legitimately had a $5,000 issue that happened and you paid your $1,000 out of pocket so the insurance company did cover the rest. And then you had another incident similar. You get evaluated or, you know, dinged kind of like when you have car insurance and you have tickets. So many claims. That's a great question. And actually it does affect your insurance. There's like a reading or something. Well, so whenever a claim happens, I want my client to call me first, if possible, depending on if it's AOL or if it's a personal lines, like an HL6. We want to evaluate, is this something we want to turn it as a claim or is it something that we want to take care of out of pocket? That's good to know that, because I think some people would think, oh, once I report it, I can't take it back. But it's nice that you can have that discussion and the person, he or she can say, you know what, I'm gonna pay that $1,200 out of pocket. It's not worth it. Or no, it's $10,000, I really can't. I can't do that right now. I need coverage. Yes, and there are times when, depending on the size of the claim and the cost of the mitigation, it makes all the sense in the world to turn that over to insurance. What we want to do as managers and insurance professionals is we want to help those AOLs manage those situations so that we don't see reoccurrences. So are we putting a plan into place so that we can address those issues? Because what will ultimately happen is insurance carers are all too willing to pay the claim. At some point, you're gonna share in some of that. And so if you wanna manage the process and keep your premiums low and stay with the preferred carers who offer those low premiums, then that's where you wanna be. If you have too many claims, then what ends up happening is you have to find yourself in a different market as a higher risk and you pay much higher premiums. Yeah, yeah. I've seen that happen on the condo side. I've seen associations not properly maintain. For example, there are plumbing or pipes and they have too many water claims or water damages and then it becomes very problematic for them. Yeah, yeah. But also to speak to what you were saying earlier about education, I think one of the biggest areas for education with condo associations is like what you were speaking about earlier, exactly what to do when there is a catastrophe or something. Because often you find, I've seen scenarios where the owners were responsible. The master policy picked up the claim and put the tenants up when I don't think that's always the case, but they don't always know. And unless you invite the insurance rep out to the property and what they did was they paid for it, not from insurance funds, but from association funds because they felt like they were responsible and they had to, but they didn't but they don't know. Right. I believe we spoke a little bit last week at a function and I believe you also come out and you talk with boards and educate managers and things like that so that they're prepared when these things come up. I believe you said you have a checklist or something like that. Yeah, I have a checklist of what procedures to take and in what order. And then in addition to that, I do, I love educating. I lead with education. I think an educated client is a better client. They understand what insurance is and what it's not and I think that's very critical. And then when something does occur and the other thing I like to do is I like to help them create a plan, if you will, to prevent future loss. Like a maintenance plan of some sort which goes into budgeting and proper reserve studies and things like that. Absolutely. Yeah. I've dealt with both sides of that issue and I think that it's important to have a proper reserve in place because it's not a matter of if these things are gonna happen. It's just a matter of when. And if you can stay in front of those issues then I get to have that conversation with the underwriter. I wanna make a point too about underwriters. They also have a responsibility and their responsibility is to have a profitable book of business. So when I bring a risk to them, they take a look at that and I get to have that conversation with look, I've met with a property manager, I've met with a board, they understand what their issues are and what your concerns are and here's their plan for dealing with that. And here is the things they've already taken care of and looking at their reserve study, they budgeted to take care of these other things. That's a much different conversation than we've had all these losses and what do we do about that? Right, right, yeah. Yeah, so I think that this has been very informative. I would love to have you come back because I feel like we've just kind of touched the tip of the iceberg there. So we're coming to an end here and Krista of course will continue our conversations and property management. And like I said, we'd love to have you back at some point so let's just please keep in touch and really good stuff. Really appreciate it, so that's our show for today. Thank you for joining us and we hope to see you again next week. Thank you, aloha.