 Good afternoon and welcome to another episode of Kondo Insider. Kondo Insider is a show for people who live and work with condominiums and we try to bring you shows that, you know, that focus on issues that are near and dear to Kondo owners and people who support them. Anyway, today I have my good friend, Sue Savio, who is the CEO of Insurance Associates. Hi, Sue. Hi, Jane. Thank you for having me. I always like you on my program. We always have some, you know, pretty good conversation. And, you know, Sue is the insurance goddess. You know, as far as condominiums go, I mean, she's the go-to person whenever I have an issue relating condominium insurance. And so, you know, so why don't we just get started right away? I mean, okay, why would a Kondo owner need condominium insurance? Why, you know, what is the reason why, you know, you would tell a Kondo owner they have to have insurance? Besides the fact that their lender is saying you have to have it. Otherwise, we're going to owe you a default under your mortgage. But other than that. Okay. So why does a Kondo owner have to have insurance? Because they pay in their maintenance fees insurance, and they're wondering, why do I have this silver policy? So here's the way it works. In a Kondo, there are basically two policies. There's the master policy, the one you pay for in your maintenance fees that covers the building as built if you have a building, or it covers the common areas for liability for slips and falls. If you serve on the board, it has your directors and officers. So in other words, there's that policy, called the master policy, that is paid for in everybody's maintenance fees. But it does not cover your contents. It does not cover your liability. It does not cover your loss of use. It does not cover your upgrades. And if there is a claim and you use the master policy, there is a deductible and your H06, the secondary policy we're talking about that a real owner should have, picks up the association's deductible. So basically you've got the master policy. We take care of that for the association. You pay for your maintenance fees. Then you as an individual unit, just like you got to have car insurance for your car that's sitting in the parking garage of your Kondo, you need to have an H06. All owners form six. It's specifically designed for Kondo unit owners, whether you live in your unit or whether you rent it out. It doesn't matter. You can have this broad policy called an H06. And every company knows exactly what you call when you call and ask for an H06. They know that term. And that's the policy you have to buy to complement the master policy. When the master policy stops with the as built, and let's say it came with carpet for Micah cabinets, for Micah counters and press board cabinets back in the 70s at Orange Shag to boot, you since have upgraded. You put beautiful cabinets in and you put a granite countertop in and you bought gorgeous tile and got rid of that Orange Shag carpet. Those things aren't covered under the master policy. You're going to get carpet money. You're going to get basic cabinet money. You want your H06, your personal policy to cover your upgrades. Okay. You have a fire. Now you can't live in your unit. It'll take us eight months a year more maybe to rebuild your unit because we have to get building permits. There's loss of use on your policy. So you can literally have the insurance company pay to put you up elsewhere because ladies and gentlemen, mortgages are still due as is the maintenance fees. You can't say, well, I can't live in my apartment. I'm not going to pay. No, you have to pay. So you still have your obligations. But what's nice is loss of use is on your policy. You've lost the use of your unit due to an insured peril and the insurance company pays you to go live elsewhere. It covers your upgrades with the beautiful countertop we talked about. It covers your contents. Your contents are at best. There was a fire. Got nothing left. Okay. It's going to give you money to go out and get clothes, et cetera, because you're at work when this happens. And you come home with the only outfit to do your work. It's going to give you money to quickly go out and get some clothes, toothbrush, hairbrush, all the things we think don't even think about that you're going to need to take to wherever you're going to spend the night. Okay. And then eventually when the unit is rebuilt and it's ready for you to come back, they're going to give you your contents money so you can go ahead and get the couches, your pusset pans, all the things about burnt up in your unit. So it's a great little policy. It covers also your association's deductible because you were cooking and you set the place on fire. The association says, okay, Jane, you set the place on fire. You pay the deductible. We're not paying it for you. You blew it. You're supposed to have an HO6 and the HO6 will pay that for Jane. So it's really a great little policy. You can't live in a condo or own a condo and not have that policy because if something goes wrong and things do go wrong, you will really be short money and you will not be a happy camper. So trust me, you need that HO6. That help explain it? Yes. And in fact, the people who are listening and if they don't know, they can just call their insurance person and say, do I have an HO6 policy? Correct. Yeah, you can call your agent. Most people put the homeowners and the auto together because you get usually a discount with the company you go to. And if your company doesn't write a homeowner's or it doesn't write the auto, it doesn't matter. You don't have to have it at the same company. It's just a way to maybe get a discount. But everybody needs to have that policy and by calling your agent, it's a one-day process. You can just go in and get it done. Right. So your recommendation is, first of all, to check with your agent to see if you have an HO6 and if you don't have an HO6, get one real quick. Exactly. That's exactly right, Jay. Do I have a policy if the guy says no, you don't have any coverage? Or if you don't ever remember cutting a check yourself directly to an insurance company except for your auto, then you know you don't have one. And you've just been lucky so far that you haven't had a claim. But fires are a dime. A dozen in condos, kitchen fires, even though we only hear about the big ones on the news, there's about 300 fires a year in condominiums. And smarter ones, kitchens on fire, maybe it only damages their unit, but still a fire. It's still something you need your policy to help with the master policy. So yes, call your agent. And, you know, along those lines, I mean, an association can make you buy an HO6, right? Even if you don't know what anything, what an HO6 is, you might get a call or a letter from the association's insurance person saying, we noticed that, you know, you don't have an HO6. And so if you don't get, you've got 30 days to get one. And if we don't, if you don't get one, then the association's got to buy one for you and charge you for it. That is correct. 514, our condo statutes, 514B allows the board, as long as the owners have voted with a 50% agreement to force owners to show proof of an HO6. And if they don't show proof to actually go out and buy one for them, okay? And charge it to them. Now it's much better if you go do your own thing because maybe if they buy you this HO6, they're not going to buy the limits you need. Maybe you have beautiful furniture and you would like it covered. But the association's just going to buy a basic policy covering just the basic limits so they make sure that the deductible of the association is covered in case you're the one that causes the claim. So you shouldn't rely on the association to buy your policy. You really should talk to your agent and he should ask you questions like, is your unit upgraded? Oh, I bought it. It was beautiful. It had granted. He's going to say, okay, we have to cover that. The master does it. He's going to ask you, do you rent it out? So unfurnished or furnished if you're a landlord. So these are the things that the agent will work with you and much better you buy your own policy than be on the master. But believe me, if the master HO6 or the HO6 policy the association buys for you is all you have. It's better than nothing. With at least it will cover the association's deductible and some of your contents. And along those lines too, you have a lot of these older buildings and a lot of the older buildings, the pipes start to fail and you have a lot of water claims, a lot of water leakage and stuff like that. And so in those situations, can the association take steps and maybe ask all their owners to provide them information about their HO6 policies if they don't have coverage? Yes. The association has the right to know if you have an HO6 or not. Because as Jane said, water claims are a dime a dozen. I file seven to 10 a day. That's a lot of water claims. Every now and then I file a fire claim. Yes, but the water claims are just astronomical because our pipes are old. In many states, pipes will last like 50, 60, 70 years. Well, in Hawaii, we're lucky to get 30 to 35 years out of our pipes. Most of our buildings were built before the 1990s. In fact, I have a slide somewhere that shows 91% of the condos on Oahu high-rise condos were built before 1990. That's a slew of old buildings. And old buildings have old pipes and they fail. And to replace pipes is very expensive because you're talking about having someone come in, put down the concrete in your wall, replace all the stacks of pipes, re-pipe the whole building. It takes about a two-week mess in your apartment while they're doing it. But it's something that we don't think we're going to have to do so soon as we do. And then we don't even realize we have to do it until we start having all these claims. And the insurance company's policy is being used as a maintenance policy because you're supposed to maintain your building and maintaining it means putting new pipes. And when you don't, when you get all of a sudden the insurance company has to pick up the damage to the building as built, your HL6 policy is going to get upset with you as well, has to pick up the damage to your upgrades, the loss of use. And so both insurance sites are going to be hammering at the association to re-plumbing. Re-do the re-plumbing, get them new pipes then because it is a serious problem. Yeah. And so really, if you live in an older building or you live in a building that has a lot of maintenance problems, that's going to affect what you have to pay for your insurance. Yes, it is. Now, what happens is the HL6 policy is a relatively inexpensive policy. You know, an average typical policy is probably $250, $300 a year. And some of them are even less. Well, let's just say an average one of that. And it can stay that low unless you start to have claims because when you go ahead on a $300 premium and put in a $25,000 deductible because you were charged with it, or you get assessed for $67, $8,000 worth of extraction money to clean up the cart and unit below you, your HL6 carrier is not a happy camper because obviously they're losing big dollars on you. So most HL6 companies will give you two claims. If you don't fix up yourself in your building and you have more than two claims on your HL6, most of them are going to say, audience, goodbye. And you're going to have to go to a market that's going to charge it higher. They're going to have a larger deductible because usually the HL6 has a $500 deductible. You're going to end up paying about a $2,500 deductible in the next carrier. You're going to be paying about three times as much. So in other words, and it's not just you, it's everybody else in the building who is having the same type of problems with claims. So it really behooves all of us, even though it's expensive, even though it's a mess to replace our pipes when they start to fail and keep on kicking the can down the road, hoping they'll ask another three, four, five years because they won't. Okay? The claims just get more and more rampant. So we just really need to take care of it. And that's another reason, you know, when you get owners who show up at board of directors meetings and they hear about all the repairs that have to be done in the building, they're the ones who start grousing about, oh, but how is that going to affect my maintenance fees? Are my maintenance fees going to go up? And you know, the anxious probably going to be, yeah. They got to go up because we have to have the money to pay for these repairs. And we have to pay for the repairs because otherwise, you know, it's going to cost us more to do the repairs when the water leaks happen and our insurance is going to go up. Right. And Jane, you hit the nail on the head. It's not free people. It's very expensive to maintain a building. And you have this huge building of solid concrete in a gorgeous state. But now we have a problem because it's 30, 35 years old. The pipes are failing. The pool needs work. The landscape needs work. We're having spalling. We got to paint. All these, the elevator needs to be maintained. All of these things have to be maintained. They can't be maintained on what your maintenance fee was when you first bought in 30 years ago. Everything has gone up. Electricity, taxes, everything goes up. So your maintenance fee has to go up along with it. Now, insurance is usually a huge chunk of everybody's maintenance fee because insurance is expensive. Well, it's even more expensive if you don't maintain your building because the insurance company says we're out of here. Okay. You're not maintaining your building. You're having all these claims. We're not going to ensure you. And in Hawaii, we have three standard markets that write our high-rise condoms. Just three. Okay. On the standard level. We have first insurance, firemen's fund, and we have DB. That's it. Once any of those three say goodbye, we're out of here. We're not going to ensure you anymore and no one will take you on. You have to go into the secondary market and you're free. You will go up three to five times as much because you didn't take care of your building and stop these claims. So it's really be who's all of us to spend the money on maintaining the building and not on excessive insurance costs because we didn't maintain. So that's why I push it all the time. Maintain, maintain, maintain. And so the owners, when they go to the board meetings and they hear about all these issues, especially if it's an older building, right? About, you know, affixing the spa and, you know, affixing the pipes and maybe going out and replacing the pipe and they say, oh, my God, that's going to cost us a ton of money. And, you know, how can I afford it? And my maintenance fees are going to go up. But, you know, like you said, if you don't maintain the building, it's just going to be more cost. And one of the costs that go up is insurance. That's right. It's exactly right. And yes, maintenance fees go up. I mean, we can all remember when we moved into the building we first bought that our maintenance fee was, in fact, my maintenance fee was less than $200. Okay? Today it's over a thousand in that building. And it should be over a thousand. They're fixing things up. They had to put new railings on. They've done their elevators. Now they're working on their pipes. They're going to go out and borrow more money. So, yes, it's not going to stay the same. But it's still more affordable owning a condo than it is a single-family home because on a single-family home, you have to replace those pipes that are 50 years old. I had just had a client call me to ask if his pipes underneath the foundation of his home were in need of repair, in fact, replacement. And he called that, see if his homeowner's policy would cover it. Just like the master policy doesn't cover pipe repair, nor does the homeowner's. It was his out-of-pocket expense. It cost him $50,000 about to replace all of his pipes because they were old. They were 50-some-odd years old and he was having issues. So the condo has the same problem. But with that individual, he had one person to pay for it. In condominium land, we have many owners to help pay for this. When he has to replace his roof, he has to pay for it. When we have roof problems or coating problems, there's many people to help on it. So it's probably still more inexpensive to live in a condo than a single-family home for repairs. But they all seem to hit around the same time at that 30-year-old age and we just have to accept the fact that aren't I lucky that we got by so fast, so long, it's now time, and deal with it. And you know, one issue too along that line, I know I can remember when I first bought my condo, the master policy, the deductible, I think, was maybe $5,000 or $10,000. Now, my association's master policy, I think, is up to $50,000 deductible. And I'm being told that we can go $100,000. And what does that mean for you as a homeowner? Okay, so Jane is so right. When I first started in this business, in fact, I still have a copy of a policy that was issued, I wouldn't start in 1969, but was issued in 1969. And it had a $500 deductible on the master policy, okay? But anyway, it used to be a $5,000. It was the typical everyday deductible of practically every condo in town. And it was fine for that for many, many years because we had very few claims. Pipes were good, appliances were good, people were taking care of things. All of a sudden, appliances were getting old. They were getting the 20-year-old. Well, water heaters last 10 years. Toilet rings leak, ice makers leak, and people were not maintaining their appliances. Then the pipe started to go out. So this $5,000 deductible became 25, and pretty much 25 was pretty standard. And then all of a sudden, we've had a slew of terrible claims. Whether old buildings are new, a pool giving out and throwing down 23 floors, a whole pool of water. We've had water heater on top of, like a 34th floor leak down and damaged 18 units. I mean, it just gets worse and worse and worse and more and more water claims to the point where the insurance company says, oh, look at all the claims we've paid out for water, which are really maintenance claims with appliances not being repaired and pipes not being repaired. So the insurance company ups the deductible for water claims. So some condos will have like a $25,000 deductible for all other perils in water, and water will be $75,000 and most of their claims are around $70,000. So the insurance company says, I'll be damned if we're going to be paying all these maintenance things. They should be dealing with it. And maybe if we charge enough to the unit owner on this deductible, because they have to go out and buy the coverage on their homeowner's policy, they will maybe decide to have their appliances inspected to care a bit of anything that's old, so it doesn't break a leak. Okay, so it's done not to be nasty, but it's done to make people realize you cannot expect the master policy to continue to be a maintenance policy. That's not what it's there for. So yes, the cost is great because if I have to go out and increase my maintenance, my 806 for a $75,000 deductible or a $100,000 deductible, and there's even a couple of condos with a $200,000 deductible, you know, that's a lot of extra money that you're paying out as a unit owner, but you need to do it because what if your unit causes that claim and you're responsible for that deductible? So yes, it behooves all of us. I keep on saying this to maintain our buildings. And so if the deductible for the building goes up, that means that it's going to cost you more money to get an 806. Right. The carriers look at the deductible that's assigned to the building. So even though you might have the best intentions and take care of your unit, if the building collectively is not doing their job and taking care of the building, the insurance deductible goes up for the building and that means everybody's 806 becomes more expensive. Exactly right. And it could be more expensive by five, six, $700 a year where that would be much better to put into new pipes or whatever would need it to be done. But yes, you hit the nail on the head. Okay. And I got to ask you, you know, with this terrible fire that happened in Lahina, is that going to affect us? Yes, it is going to affect us. There's no way to say it's not going to affect us financially as in the LB insurance side. I mean, it mostly affects all of us. We're all way for the people over there, what they're going to do, how they're going to handle it. But we have to, the realistic side is that it's going to affect every single person who buys insurance in our state because every insurance company that writes coverage for us on a wall who writes in mouth. Okay. So whether it's first insurance, fireman's fund, whether it's island insurance, whoever you use, they have losses there. And these are just small losses. These are what they're estimating $6 to $10 billion. That's a huge amount of money that the insurance companies are going to be paying out and they're all well-heeled and will take care of that. But unfortunately, they're not going to have in policyholder reserves the money they keep in reserves to pay other claims any money left or very little left because now they have to say, oh my goodness, we could have another fire somewhere. Now it's great, hopefully, they could have a house burned down or they could have a condor have some trouble and they have to have money, policyholder surplus to pay claims. And when you take all of your, most of your policyholder surplus and pay all those claims, you have to build up this little pot of money for claim payment. And so it's going to mean increased rates for everyone. Okay. I mean, just accept it, people. It's coming. It won't happen probably until maybe the first quarter of January or first quarter of next year, it is going, as they find out exactly what the losses are, it's going to affect us. And we have to budget for that. And for condos, it's so hard because we budget in the months of August and September for next year. And next year, your policy could not come up until November of next year. And now you're asking, Sue, what do you think budgeting for November 24 through November 25? You know, we try to budget and make sure that you have the money set aside. And it's really hard because is it going to be a 10% increase to everybody? Is it going to be a 20% increase? Or will it even be more? We don't know. But we know it will be an increase. We've talked to a couple of different underwriters, local ones as well as mainland ones who write some of our large condos. And they're guessing, just like when I give you a budget, about 15 to 20% for a condo concrete. And on the wood frame side, especially now, we're going to be rated for, we've always been rated as a hurricane state. But now we're going to be rated as a wildfire state. And there are areas even on a wahoo that have issues with wildfires. So those areas are going to get rated higher up. I mean, condos and Waikiki are going to have a wildfire rating, but the others are. And so it's going to present increases on that as well. And of course, our value of our property, the construction value goes up all the time. So they've got all these factors that maybe some people would not be looking at a 30% increase on their property. So it's, and then of course, if we have to increase the value by 10, 15% on the building, that adds more to it as well. So it's really hard to say what that figure is going to be. We'll all more in January, February, March, but we will all have based upon that fight. Oh, I know. Yeah. That's not something I look forward to. No, being a board president like you, Jane, and you have to go to your board and your owners, and you have to say, okay, insurance is going up this much. And we did nothing wrong, but we're in this big pod of sharing. You know, that's what insurance is about. And so we're going to have this increase. And then you say, well, gee, and we have to increase for tax, electricity, and we have to increase for the landscaping people. And we better put money aside for the painting. And we're going to try to do the pipes down the pipe. And you've got all these things putting pressure on you and to go to the owners and say, well, it looks like we're going to have a 20% increase or a 30% increase in our maintenance fees this year. I mean, the backlash on that and all those owners screaming at you at the board meeting, right? It's not pleasant people, but Jane's been there, and so have I. Right. And so, you know, this is my last question because we're kind of running out of time. But if you've had to make some suggestions to our listeners on what they can do to, you know, to reduce what they have to pay for insurance or at least minimize what they're going to have to pay for in the future, what kind of advice can you give them? What can they do now to, you know, to deal with all those other, you know, to deal with the costs of insurance going up? Okay. So I would tell every owner and every condo to make sure your board is maintaining your building. Don't let them kick it. Do it five years later. If something needs to be painted, paint it. Don't say we can't afford it. Do it. Do it when it's required, because if you don't maintain as you go, then it gets all of a sudden it's hell on wheels and there's all kinds of planes and your rates are going to go sky high. So maintain. And of course, for buildings that aren't sprinkled as expensive as it is, you seriously need to worry about that and start to figure out how you're going to sprinkle in your building. Because right now, a non-sprinkler building is being charged about 30% more than a sprinkler building. If it was an exact same building with the same losses, the non-sprinkler building is paying more. The umbrella carriers charging, the general liability carriers charging more, the DNO carriers charging more, and the property carriers. So it's about a 30% height. So it really is something you have to think about. And yes, it's expensive. I have a condo that's in a building that's not sprinkled, and I can't get the board yet to make the decision to sprinkle. But it's something that really we need to maintain and keep our condo up. You need to keep it ready for the next 50 years beyond our lifetime. That's what I would tell you. So that means that we have to kind of stay diligent and just be proactive in trying to make sure that our building is maintained in a safe manner and to let people know that this is something that we have to do, even if it means that we have to spend money and the maintenance fees are going to go up. Right. And I always tell people, I'm an owner too. When I increase your maintenance fees, I'm increasing mine. I don't want it either, but I don't want it to be the board that didn't maintain the build. I don't want to be that board member. Right. Because that just means that you're just making problems for everybody else in the building. Exactly. If you don't do your job, it affects the rest of us. And if you don't maintain the building, not only are you exposing the owners to higher risk of the building collapsing or deteriorating, you've got insurance to be too worried about. Our buildings, our real estate is our biggest asset for most people. I mean, our car is not worth anywhere near our units. I mean, real estate is it in Hawaii. And for us, that's the wealth, the generational wealth we want to pass on to the next generation so that they can stay and live in Hawaii if they choose. Otherwise, if we don't have something to pass on to them, how does anybody make it in here in Hawaii and young kids starting out? I'm sure as grandparents, we've all planning to leave this to our children and our grandchildren so that they can choose where they live. Do they live here or there in Vegas? Just for that attitude. So I think it's kind of important that it's our job as board of directors to maintain. Right. And to make sure that there is something to pass on to the next generation. Yes. Right. And we have run out of time soon. We can probably go on for much longer. Thank you. You've always provided us with great information and great recommendations. And we look forward to talking to you in the future again. I know you're going to be around to answer my questions when I call you and say, hey, Sue, I got to know. And you're right there with the answer. And so thank you. Thank you. Thank you for all of that. And to our listeners, thank you for joining us for this episode. And please join us next week for another episode of Condo Insider. Aloha and Mahalo. Thank you for having me. Aloha. Thank you, Sue.