 This is Think Tech Hawaii, Community Matters here. Aloha and welcome again to Kondo Insider. I hope you have visited us before for our new visual people watching us. We're about associations in Hawaii, mostly Kondo associations. About 40% of our population has been estimated to live in an association. We try to bring interesting topics about Kondo living for discussion. And I would remind everybody we do have a hotline. You can call them with a question if you dial 808-374-2014. What's been almost every day in our headlines has been a recent high-rise Kondo fire in Hawaii. There's some very interesting issues about living in a Kondo. And so I decided to ask Sue Savio of Insurance Associates to visit with us today and talk about insurance and what happens when it's a disaster. I do want to start this show by saying that this is a general topic about insurance for associations. And the big fire was Marco Polo, and this is not about Marco Polo. It's about general nature, about how all this works and what your risks are as a homeowner. And even though that was the catalyst that made you fight the show, it's an independent show strictly about insurance and associations and what the potential risks are for you and your association. So, Sue, welcome to the show again and remind everybody, I can't imagine anybody in our industry doesn't know you, but remind everybody about you again and your company. Okay, well, I was born and raised here. I've been in insurance business since 1975. I handle our agency handles Kondo minimum insurance. We have about 1,000 of them throughout the state. That is what I do, Kondo insurance. And remind us, generally speaking, under the Kondo statute, what insurance does an association have to carry? Okay, association has to carry property insurance if they have property. They have to carry liability for all their common and limited common areas. They have to carry bond insurance in case they protect their money. They carry umbrella insurance. They carry workers comp if they have employees, TDI, workers comp for injuries on the job, TDI for injuries off the job. So depending upon what they have, they have certain things they have to carry. And of course, directors and officers insurance, because their directors and officers are serving for free, and they need to be protected as well. So that's pretty much about what a Kondo needs. And it's probably a fidelity bond to a crime policy. Right, there is a bond for their money. So the money that either the agent has and or their employees has, either through the agent or through their own policy, they're protected for that as well. Correct. So anyway, we had this major disaster. Yes, we did. What happens when you have a disaster? I mean, obviously it's all over the news. Is anybody showing up at the property? What's going on? Of course. We obviously saw it on TV ourselves. We filed the claim instantly. The adjuster for the company was down there waiting for the fireman to put out the fire. He spent the weekend there, I swear. And in fact, I did talk to him. He said he maybe had six hours of sleep. He's been there daily since. I have other people as well. But yes, we filed the claim. The adjuster out when we start to work. And this type of claim is under the property policy. Is that correct? Yes, the fire damage and the soot damage and the water damage is all property. And so we often hear that by the time the building was built today, the building code has changed. Are they covered for changes in the building code or how does that work? The insurance policy has something called building ordinance. And because there are changes in the code, we do have many millions for building ordinance. So because of change of code, certain things are going to be required when we go to rebuild. And the association does have some building ordinance coverage. And there's probably a limit on that. Of course, just like there's a limit on the building, the limit on the building ordinance, there's limits on everything. And I've heard also that on larger buildings, you know, and of course, you know, some of these buildings are huge. Yes. And the values are in the tens, if not hundreds of millions of dollars. Correct. On those types of buildings, does a single insurance company insure those? I've heard a term reassurance once in a while. I'm assuming that if you had all that insurance with one company, they could become exposed as well in theory. But what is this reassurance and insurance thing we hear about? Okay. So what normally happens is the insurance companies who are going into large projects or millions of dollars, want the whole exposure to themselves. So they have contracts with reinsurers. They literally take their insurance and reinsure it with someone else who maybe takes the next 5 million or the next 10 million. So when, take for example, the trade center, when it went down, there was somebody who probably had a thousand dollars for a premium for the last million dollars of the trade center, not ever expecting to see it go. So in other words, there were many carriers on that. And there are many carriers that will be on Marco Polo. But first insurance is the main lead. When they handle the whole claim, they have that power. They are. So for all of our viewers out there, if you have a larger building, it's probable that your insurance company has reinsured it. And it's probable that the proper to say that your primary carrier, let's just make it up, that they insured the first 5 million. That they're on the hook for the first 5 million and the reinsurance is after the primary carrier's insurance? That's very fair to say. That is how it works. But please understand, the first carrier that has the primary layer is the one that handles the whole claim. You don't deal with an adjuster for this much and an adjuster for the next. It's all one adjuster. So it's kind of like the primary carrier, you use their insurance first and then it moves on down the road, I guess. Right. And most board members or condo owners never know there is this reinsurance. It's not anything they're going to get involved with because first insurance is going to be on it. Now those reinsurance carriers, they sell insurance publicly also? Are they specialists in the reinsurance? They're specialists in the reinsurance world. They sell to insurance companies. So that's what their primary thing is. That's their primary function. And I'm only talking the property policy right now. So what are the common insurances all associations carry for a lot of reasons? The umbrella. Does umbrella cover property claims? No. It does not cover property claims. The only thing that covers property claims is your property policy. And so I remember this term and I know we didn't chat about this but sometimes the adjuster says you should insure your building for 50 million and some board says well I'm only going to insure for 25 million and there's a phrase called in the policy called co-insurance. That is correct. Could you kind of tell us what that is so we can warn all these people out there the risk of not properly covering your building? Okay, first of all under condo statute in Hawaii you are supposed to insure to 100%. So to do anything less is to go against what's required by the bylaws and get yourself into trouble for insurance. The insurance companies say yes you're a concrete structure, yes you don't ever think you're going to have 100% loss but if you decide to only insure for 25%, 50% they're going to say okay the loss was a million dollars, you should have been insured for this figure but you only insured for 50%, 50% of your million dollar loss is a half a million dollars, now we subtract our deductible, here's your check. So it doesn't behoove anybody to under insure. I can see the problem but a lot of people think they're doing benefit to the association and it's not that they intentionally do that but you look for data that would give them some basis to say well the adjuster's number is wrong, it's not really 50 million it's really only 30 million and there's a lot of risk associated with that if it turns out you have a claim you haven't insured it for the proper amount of money. We have normally three to four fire claims a year in our agency we know what it costs to rebuild the typical condo, a high end condo concrete versus wood frame, we've had those claims we know what the contractors are going to charge so we're pretty always much on accurate what we need we work with our companies as well so we're not picking a figure out of the sky we're also not saying having the board tell us we only want to insure for 20 million because I've been asked to do things like that and I said well you know you're worth 30 million, I can't do that go find another agent but I'm not doing that so you have to be very careful because the board can get themselves into trouble but you always need to insure two value, replacement costs. It's my understanding in general that when you as an association purchase property insurance you've insured it for I'm going to call the as-built conditions the original cabinets, the original floor, the common areas those types of things but that doesn't protect the homeowner does it? No, it protects the homeowner only in that they get the as-originally built but most homeowners especially in older condos they have upgraded they've ripped out kitchens and they've put beautiful coa wood floors in and matching coa cabinets and they've got mirrors on their walls all of these are upgrades these upgrades are not covered under the master policy because the bylaws in Hawaii say as-originally built even if we wanted to include all of those and go into each unit and check it out there's no way to do it so we have to cover as-originally built but at today's cost we've made it with basic cabinets but we're going to give you today's basic cabinets we're going to give you today's basic flooring let's say it came with carpet and you now have a wood floor down well the difference is going to have to be picked up on a policy called an HO6 the master policy can only cover as-originally built well that makes sense in a way because should other owners who didn't upgrade be responsible for the increased cost for those who did upgrade so those upgrades are covered under the HO6, right? if you have this issue, if you're a tenant actually not a tenant, a landlord you can have lost income, right? if you live there you can have loss of use of your place and need a place to live if you're a tenant you may not have a place to live let's stay with the owner's policy which is the HO6 policy where do you see people making mistakes on the HO6 policy? so the HO6 is a policy designed for condo unit owners whether you live in it or rent it out all by the same policy under an HO6 there's something called dwelling or building and that's where you put your upgrades in so if you put $30,000 of improvements into your unit you want to make sure you have the $30,000 under dwelling plus the association's deductible because if you cause a claim in Hawaii under 514b the association can charge the deductible back to you so you want to make sure your insurance company is going to pay that why wash your machine leak? and I cause $20,000 worth of damage to the units below and myself what I can do then is say okay I need to make sure I have a $10,000 deductible if the association has a $10,000 deductible some associations have $25000 whatever that deductible is plus your improvements need to be under the dwelling or building portion of your policy so that means when there's a fire or when there's a water claim and you've damaged your beautiful floor we're going to give you money the master policy is going to give you money for carpet let's say $3,000 and your floor was $20,000 because it's wood the $17,000 difference will come from the HO6 if you're insured correctly okay? right now the other thing is loss of use you mentioned there is a section for loss of use and the problem with loss of use is the landlord says okay I get $2,000 a month in rent times 12 I need $24,000 worth of loss of rent many people say especially owners don't realize how much it costs to go rent a place because your maintenance fees are due your mortgage is still due if you have one and now you've got to go rent a place because you can't live in your unit so you need a robust what I call today a robust HO6 that has enough money under loss of use to take care of you because the association's policy does not offer you any type of loss of use it has to be your policy and that particular portion of the HO6 policy we're going to take a break after this question but that particular portion of policy is based on a dollar limit not like number of days or months correct like I get to get accommodations until my unit is fixed it's based on what limits you buy with respect so if you only bought $10,000 worth of loss of use then in fact if rents are $2,000 you only have five months then you're on your own is that right? that is exactly right there is a limit on that just like the dwelling and the improvements there's a limit there so if you really made $50,000 worth of improvements and you're only covering 25 you're going to be short if something happens same thing with loss of use if you only got $10,000 as you said and rents are $2,000 a month and you're going to be out of your unit for a year you didn't buy enough okay we're going to take a quick break and come back with Sue I have more questions about insurance and she's the right lady because she knows a heck of a lot more about it than I do we'll be right back we have this crazy thing going on today I was just walking by and all these DJs and producers are set up all around the city I just walked by and I said what's happening guys they told me they were making music little talent and then sat down and kind of this is Think Tech Hawaii raising public awareness welcome back to condo insider we're sitting here with Sue Savio talking about insurance in light of a disaster such as a fire or hurricane or something else along that line we're talking about the homeowner's HO6 policy and we discussed briefly it'll pay for any upgrade you have to the property like new cabinets or wood floors or co-op or whatever it may be and we talked briefly about the fact that it will cover your loss of use of the property if you live there as far as giving you another accommodation but when you set the limit in that policy and say I only want to ensure it's a dollar limit five or ten or twenty thousand dollars once that money runs out you're on your own so you've got to be careful when looking at the limits you set on the HO6 policy but then we have tenants and people who rent them out landlords who depend on that income to pay their mortgage and maintenance fees and everything else and because there's a fire or earthquake I'm assuming they have earthquake coverage I was going to say no earthquake coverage most people don't care that a lot so we'll say hurricane that in fact they would have a cash flow they probably still have to pay their maintenance fees in their mortgage so how does the loss of income portion okay so for a landlord the loss of income is loss of rent okay so loss of use they've lost the ability to rent that unit because they've lost the ability to rent that unit they know what they rent it for three thousand a month they've bought hopefully thirty six thousand dollars worth of coverage let's say for the year and they know the insurance company is going to say okay it may take three months to rebuild but they will pay the landlord the money so the landlord can go ahead and pay his maintenance fees and his mortgage that's how it works just like it does for the owner who has lost the use so they would be getting assuming the rents were three thousand they'd get up to thirty six thousand dollars in income like they're giving up a mortgage they'd still pay their maintenance fees going back to the under-occupied of the second they still have to pay their maintenance fees too of course they do and that's not in short well they're paying their maintenance fees because they have lost of use so they can afford to go live elsewhere because somebody is paying them to live elsewhere so they can still afford their maintenance fees they can still afford their mortgage if you have to put maintenance fees and mortgage and loss of use not going to get away from that. And now we get to the poor tenant who's just renting there. Does the homeowners' HO6 policy protect them for a place to live? For a tenant, this policy called an HO4 is designed for a tenant, because a tenant is not in need of ensuring the building or the improvements, because tenants don't make improvements. So they have an HO4, which covers their contents. It covers their loss of use. So if I'm a tenant that was renting and my unit is trashed and I can't rent, I can go ahead and, if I want to come back there, let's say my unit's not too bad. The landlord says I can come back once he fixes it up. It's going to be two, three months, but I have to go elsewhere to rent. I can use my loss of use under my HO4 if I'm a tenant. Maybe my furniture got trashed. So once the unit is available or the insurance company will give me my contents, so I can go ahead and buy the stuff that I need to live. So it's just like an HO6, but not including the portion about the dwelling. And for a tenant to buy that, can you give me a proctorate range of what that costs for a tenant? 150, 250. I mean, somewhere within there, sometimes you can get it less than that, but you've got to realize that it's not so much the price that you're looking to buy. You're looking to buy the right amount of coverage. And I think what happens to a lot of people when there is a disaster like we just went through is they all realize they did not have enough. And what everyone is saying that was called me on it is, oh, I didn't have enough contents. I didn't have enough loss of use. I should have had more. And when they find out how cheap it is, you know, instead of spending $150 or $200, gee, if I'd spent another $100, I'd be fine. So it's really, I know everybody is price conscious, because we all live from paycheck to paycheck, but it is important to understand what happens if and if I cannot live in my unit, where am I going to go? How am I going to live? I don't have any relatives here, or I have no one that's going to give me a place to stay. I mean, those are the issues that people are facing now. As you saying from your experience, bad question to ask you probably, most people buy enough insurance for this? No, I am convinced that they do not buy enough insurance for this. I've not had one call from anybody that says, oh, I bought extra coverage. Shucks, I spent too much money on my 806. Everybody has said I didn't buy enough. Oh, I should have done this. I should have had more of this. People, when you don't have a catastrophe to look at, and you just, hey, I've lived here for 20 years, I don't need much, my content isn't worth much, then when you start to lose it all, you realize that gee, I did have a lot of stuff, and I really do need to have more loss of use. And yeah, no one's called me to tell me they were overinsured. Well, because the pool I would call it, when you insure an 806, from an insurance company's point of view, they're looking at like a state of Hawaii, that much larger pool, so the rates are really very low, where it's not like just that building. It's more, you can get really good rates at two to three, 400 bucks a year, depending on your coverage requirements, and protect you against a disaster. Correct. And it's always nice to not have to pay it when you don't have a disaster. The problem is what are you gonna do if you do have a disaster? How do you protect your family to make sure that you can meet all your obligations and have a place to live, and even though it's gonna be inconvenient no matter what once you've had a fire, but now as many people need to go back and look at this a little more carefully, maybe talk to their insurance professional about what the worst case risk situation may be with respect to that. Right, well, and I think this is a worst case situation, and I think most people need to go back and say, okay, I live in a condo, I, what are my coverage limits, and oh my, most people will say, I don't have enough. If that happened to me, I don't have a year's worth of loss of rent. I really have only 10,000 of contents, and oh my goodness, when I was poor and first bought this condo, maybe that was enough because I had early Salvation Army, but now I've got real furniture, and I've got pots and pans, and I've got all kinds of electronics. 10,000 isn't enough. So I mean, people do need, who are not impacted right now, do need to go and look at their coverages, call their agent, and say I want realistic figures here because this could happen to me. And what I recommend, I recommend, I recollect, is that going back to, you look at association insurance policies. And in the old days, you could buy one, two, and 3,000 dollar deductibles. Now they're 10, 20, 30,000 dollar deductibles. And one of the positions of the industry when they adopted 514B was, they had the ability to force people to buy HL6 policies. Although the limits are very, very low, there's really no standard with respect to that. And the reason that was done, it was actually cheaper for the owner instead of the association trying to buy a very low deductible. We have an isolated building of 100 to 150 units where the carrier is going to put that into its premium. It was easier to have a much higher deductible and have the owners purchase the difference to an HL6 policy. It was more economical for the owner on an overall basis. Is that kind of how you remember it? If that's sort of how it got started, then of course we have all these water claims because our pipes are getting old. So the insurance industry, of course, if you want to continue on and you're not going to retrofit your pipes, the deductible has gone up for the condominium. And so what used to be the standard thousand dollar deductible then went to 5,000. The standard is slowly becoming 10,000. Condos that have a lot of water claims that have 25, some even have a 50,000 dollar deductible. So that has to be picked up by the unit owner. That's why 514B saying the board has the right to charge everyone, force everyone to have a homeowners and the limits they send out, they normally say on the dwelling side, they usually put the deductible there, saying you've got to have a 15,000 or a 10,000 because we have a 10,000 dollar deductible plus your improvements. So that is being sent out. I guess that was my point. If you go back to the owner doing the HL6 policy, they better make sure under the dwelling they've covered the association deductible because I'm not sure there aren't associations with 25 or maybe even 50,000 dollar deductible because they had a lot of claims. There are. And if your unit is the one and the condo statute gives them the right to charge it back to the owner, if you haven't insured yourself properly for that, so I think it's probably a good thing for owners and to carefully look at what their HL6 policy is and I don't know if they legally can require a tenant to buy an HL4 policy in their lease. So association cannot force a tenant to buy an HL4. The landlord can. I can say as a landlord, you can't rent my unit unless you show me proof of an HL4. I can do that as a landlord as part of renting my unit but the association cannot force a tenant but they can force an owner to have it. And one good thing that's coming out of this is I'm getting a lot of calls from insurance agents. Sue, I'm gonna be writing on HL6 for someone who lives in this building what's the association's deductible. That always thrills me when somebody will call from another company and say what is the deductible. And I always tell them it's this amount, this building's been around a long time, there's probably lots of improvements, make sure you get them covered, yes. We're going off of HL6 and going back to the association side for them. So now we have a disaster, a fire. Right. Who's in charge? I mean all of a sudden you've done some mitigations and water extraction, you send some people in to make sure the place is safe and you've kind of buttoned it up and I guess who has made those decisions on the mitigation and who's making the decisions? What are the next steps though? Is it a collaborative effort or how's that kind of happen? Seems like a big, big project. It's a huge project and it's not there yet with, you know, currently with Marco Polo, it's a very long time, you have a lot of units, you can't have 50 contractors working, there's not enough elevators, there's not enough parking, there's no place to stage your repair work. So it's going to be, has to be a methodical project and you can't do, someone can't do one unit owner, can't go in and do his unit and then they decide to clean the, because of the asbestos and things they're going to do the hallways. It has to be done together. So it's very much a long process. It starts off with the adjuster, obviously and the extractors who came the night of the fire or the next morning or the next couple of weeks to dry out what they can, you know, and to clean out the hallways and things of that sort. But now it's going to be, all right, contractor, insurance company, board, everybody let's sit down and how are we going to do this? We're going to start at the top, we're going to start at the bottom, where are we going to go to get these units going? An important question, back to the association, insurance. So you've had a unit damaged and to the Asbilt, is there, when the association gets to check, what do they do? Do they fix the unit, do they give the owners the money? What happens to their proceeds from this policy? Okay, so the proceeds from the fire insurance policy will be made out to the named insured, which is the association. It will be sent to their management company who will deposit it into the account. Along with the proceeds will be a breakout of what the insurance company is paying. It may be 10 units, it may be 100 units, whatever it is, it'll stay unit and the amount they're giving to them. So that would go back after it's deposited, this management company is going to be cutting a check and sending the backup to each owner as to here's the proceeds from your claim for the inside of your unit for the Asbilt. Now the unit owner will also get a check from his H06 carrier, okay, because he's got an H06 and let's say he has, you know, $50,000 worth of improvements coverage. He's gonna get that $50,000 plus what we're giving him and then he's got enough money there, hopefully, to put back his unit the way he wants it. So the short answer is that the association as the insured's gonna get the money, but then they're gonna distribute it to the owner who's gonna be responsible for repair the inside of his unit. Right, right. Recognizing his coordination because of the common areas and the common elements and everything else. We're down to about our last minute, so quick question. I know it's tough when they answer shortly. Will these types of claims have a big effect on premiums? I think it will affect a little bit the non-sprinkly buildings. I don't think it will affect the sprinkler buildings. It's, and I don't think it's gonna be doubling anybody's cost. I think you're gonna be talking maybe, you know, three, four percent at the beginning until this is a long haul. We don't really know what it's gonna affect. I think the 806 premiums will not so much go up, but I think people will look at their 806 and say, oh my gosh, I really do need to be, order me a more robust. And I think people should be paying more for their 806. And I have always told insurance companies, I don't understand how you can cover all that you do for the Manini premium that you charge. So yes, I think that's where we're gonna see it going up. I wanna thank you for being here today. And I guess my word of wisdom to all of our viewers out there is make sure you're adequately insured. Your limits of liability and your coverage is adequate to protect your family because if it's not, in the end, you're gonna have to suffer if there is unfortunately some kind of event. I wanna thank Sue, one of my very dear friends and smartest person I know in insurance in Hawaii for being here today. And we look forward to seeing you next week on Condo Insider. We'll be continuing to talk about different issues and disasters. So thank you for watching.