 No Insider, Hawaii's weekly show about association living, primarily for association board members as well as owners, so you understand the obligations and rights and opportunities within your association. I've invited today as our guest, probably someone who needs no introduction, probably the guru of insurance in Hawaii, my good friend, Sue Savio, welcome to the show soon. Thank you for having me. Just to refresh some of the people who may not know you, which I find very hard to believe, but this tells them about your background. Well, I've been in the insurance business since 1975. I specialize in condominium insurance and spend most of my days with boards on three boards myself, so understand both sides, the insurance side, owner side, as well as board member side. So it's what I eat, live, sleep, dream about, insurance. Does that give you a headache serving on three boards? No, it does not. And I'm president of two, so if the headache comes, it's my fault. Well, you know, insurance is a big thing, and from my experience, I've seen a lot of changes and rates and amount of claims and things. Give us a brief overview of where the insurance market is today in Hawaii. Today in Hawaii, the market is changing. There's been a lot of property claims not only in Hawaii, but on the mainland, like the California fires, that all affects Hawaii's property rates. So all condo owners are going to see their property rates increase. The California fires alone are estimated to be in the neighborhood of $11 billion, billion, not million. So we all buy re-insurance from the same companies that re-insured those California fires. So when our companies here go to buy re-insurance for the large buildings, they're going to have to be paying those rates. So yes, everybody is going to be seeing rate increases on their property. Liability-wise, things aren't too bad in Hawaii. Our claims are no greater than they've been any other year, so I don't think we're going to see any problems there. But the property rates are going up, Richard. How about the Director of Officer Liability Policy? I've heard a lot of kind of stink about that and bad news on that. Would you clarify what the market's like in the D&O Director of Officer Liability Policy market? I sure will. Hawaii's number one, and we don't want to be number one. We're number one for claims, more claims than any other state. We're number one for the cost of payout on those claims, and it's not a good spot to be in number one. What's happened in Hawaii is we had a lot of non-judicial foreclosure claims hit, and they've now over 100 of those claims. And then we've had companies leave Hawaii who say, thank you, no, I'm not going to stay here and write business. So we're down to four or five main companies that write the condo and directors and officers, and it is a problem for Hawaii. And it's going to continue to be a problem until we find out what happens with those non-judicial foreclosure claims. So rates are up and companies writing it are down. One final question before I get into the meat of our show. I know you're talking about reinsurance a moment ago. Could you just explain to the audience how reinsurance means how they're kind of pushing together? Sure. So what happened is let's take a big building like the Marco Polo. We have a $76 million fire. First, insurance was on that risk. They did not write the whole $76 million of that building. They kept maybe the first $5 million, $4 to $5 million, and then they buy layers of reinsurance from companies who has the backing to cover a fire of like that. So maybe there's three or four reinsurers that come in and say, okay, here's the $50 million that we're on for. And then because let's say it's a $200 million building, let's say first keeps the first $5 million, and then the next guy takes $50 million, then the next guy takes $50 million, all the way up to the limits you need. So when there is a fire or when there is something like 9-11 where the whole building went down, many, many companies play in that loss, not just the lead company. So that's what reinsurance is. And all insurance companies go to these reinsurers to buy insurance for themselves to protect them should there be a large claim. So it's kind of like insuring the insurance company in a way. Exactly. They're taking part of their risk and they're selling it off to someone else. So that's probably a good thing that you don't have one person on the hook for all of this. Right. You want to have many players involved on whether it's the California fires, whether it's the Marco Polo fires. You don't want one company going under because of a huge claim. But we know an association has to, a condo association has to buy insurance by law. The statute defines certain types of policies they have to have. And then you hear about the HO6 policy, which is a homeowner policy. Can you briefly just talk about what the condo association purchases and what kind of policies that is? And then how that, we'll talk shortly about how that leads into the HO6. Sure. So the association, because of their bylaws, have to insure the buildings. And in the bylaws, there's certain coverages they have to buy. And they have to insure their building at 100% replacement cost. And it has to be covered as originally built inside and out. And that is the master policy, which we refer to. That covers the building as a structure. But because it's as originally built, it also covers inside the unit, cabinets, tubs, toilets, sinks, walls, floor, ceiling, because it's as originally built. So that is the master policy. But as originally built means there's no coverage for your contents, no coverage for your improvements by any owner. There's no coverage for your loss of use. You can't use your building, your unit for six months because you had a fire. You still have to pay maintenance fees. You still have to pay mortgage. You've lost the use. These are things that are covered under the HO6. So where the master policy stops, the HO6 policy takes over. And without both policies, if you had a claim, you're going to be short. So let's look at the concept for a second. I know in the old days, when I first started this business, back when there were buggies, I think. But no, it wasn't that long ago. It sure is deductibles for condos for property, meaning like water claims. We're like a thousand bucks, $2,000. Now they're like $10,000, $20,000, $25,000. Can you walk us through how we got from $1,000 to $25,000 and how the HO6 policy kind of rolls into that? Sure. In the old days, when our condos were first built in the 60s and 70s, they're brand new condos. We weren't having water claim issues. And it was standard to have $1,000 deductible. Then we started to have claims. So they went up to like $5,000. And we've been at $5,000 for several years. But what happened these last couple of years is we've had so many water claims because our pipes are failing, our appliances are failing. And of course, the cost to remediate a unit once it's been leaked upon is very expensive. We have mold issues. We have asbestos issues. We have just the fact that we have to get somebody in there to extract the water. Gone. When I started, Richard, it was maybe $500 to $1,000 to dry out a unit. Today, minimum is $5,000 per unit. So you can see the difference. So what's happened is our deductibles are going up because we've had so many claims. So most people were at $5,000. And if you're still at $5,000, that means you've not had claims. But $10,000 was very common in the last couple of years. What's happened is even with a $10,000 deductible, the insurance companies are paying out huge dollars on water claims. So many companies have said, owners, it's your water heaters. It's your washing machine hoses. You're not taking care of your appliances. Association, it's your common element. Pipes that are in the wall that are going to cost millions of dollars to repair. But until you do, we're going to raise your deductible. So a lot of condos now are at a $25,000 water deductible. It's still $5,000 or $10,000 for a fire or a windstorm or falling objects, some of the other perils we ensure. But the water deductible has gone up to $25,000. I have some condos at $50,000. And I have one condo just recently the company told me, we're not going to stay on this. I said, well, how about $100,000 deductible? Would you stay on for $100,000? So it gives you an indication that we've got to be saving money to fix things up. We have to force owners to rip out their old appliances, put in new ones. Water heaters aren't meant to last 20 years. In other words, we've got to stop the leaks. And the owners have got to help. What they've done in this process, as I understand it, so let's just use the $50,000 deductible number. This might believe that the condo statute allows the board to assess that deductible against the homeowner individually or against their apartment individually. Or they might assess it to two or three apartments who might be part of it. But the statute gives the board the authority to assess that $50,000 deductible as it sees fit. It might make it a common expense of everybody. It might say unit number 101, you're 100% responsible for the $100,000. How does that work into the HO6 policy? OK, so you're right. The board does have the authority through 514B to charge the deductible either one to the causative unit, the unit that caused the claim, or if it's, you can't tell from where it came, but there's a kid's toy that blocked the pipe and it backed up. And you know, there's six kids living above, whatever. You can then charge it to the owners who are receiving proceeds from the claim. But you're right. The association doesn't have to pay that deductible. But when it gets charged or assessed to the unit owner, their HO6 policy, that homeowner's policy, does have coverage to pay it. OK, so they're going to get a letter that says on such a date your unit caused the claim, and we're charging you $20,000 of our $50,000 deductible. Then I'm going to send that letter to my own HO6 carrier who's going to help me pay for it. So that's how important it is, the HO6. Are there limits on the deductible? Or you have to buy a certain amount under the HO6 policy? You do have to buy enough to cover your association deductible. In other words, if you only buy $20,000 and there's a $50,000 deductible, you're short. And guess who's going to have to make that up? You are. The individual owner's going to have to make it up. Correct. The individual unit owner's going to have to make it up if it's assessed to them. Last Saturday, I taught a class for some real estate agents on their continuing education. They have to have classes to get re-licensed every other year. And I teach a class on condo governance. And one of the sections is called water claims. I said the statement, please correct me if I'm wrong, that when you have a claim, a water claim in a condo, always submit it to the master policy through the association. It may turn out as below the deductible, but either way, the master policy is the primary insurer of all water claims. Will it be an ice maker that breaks? Someone left laundry in the sink in an overflowed? If it's a water claim, the master policy is the primary policy. They may subjugate against the age of sick, but the master, am I correct on that? The master policy is always primary for any kind of damage to the building, whether it be a water claim or a fire claim or whatever the case may be. The master policy is the primary policy. The homeowner's sixth, the policy of the individual unit owners is secondary. What the master policy doesn't cover, the homeowner's sixth is supposed to step in, if you're insured correctly, with the right limits to cover the claim. So yes, you have to report it to the master policy. So comment on this then. When a board says, when there's a claim between two units, that's between those two units. We're not going to get involved. What do you say to those board members? There's no such thing as between unit owners. If the building has any kind of damage and obviously it had to go through the ceiling to involve another unit or through the walls to involve a unit to the side, it's not between the owners. It's now a condo claim. The master policy has to get involved. So looking at then the age of six policy is separate from the statutory policies of the association. You're going to have limits of liability and coverage like any other policy. You're going to buy or not buy things within that policy, correct? Correct. So what are the kind of things that they should look for to include in the age of six policy to give them maximum protection? I always say people should buy a robust age of six rather than worrying about the premium of $200 or $300. What are you getting for your premium? What limits are you buying? And there's certain things that are covered. Coverage A, which is the dwelling. That's where you need to have the association's deductible covered and that's where you need to have your improvements covered. So if you've made $20,000 or you are a prior owner, has made $20,000 worth of improvements, you need to make sure you have $20,000 plus the association's $10,000 deductible. If the association has a $20,000 deductible, then it's your improvements plus the $20,000 deductible. Under dwelling. The next thing is contents. Only you know what your stuff is worth, okay? And if you've got early salvation army or you've got early antiques, that's your decision to decide. And then of course there's the liability side and it's very important to make sure you have enough liability on your homeowner's policy in case something goes seriously wrong with your unit, whether you rent it out or live in it, that you have enough liability to cover that exposure. So each unit owner needs to review their unit's coverages, what they've done to their unit with their insurance agent. They need to have a discussion. Just don't say, I want to spend $150. That's not how you decide what you need. I have some more questions on that, but we're going to take a very short break and we'll be right back with Sue Savio. And I'm going to ask some more difficult questions. I don't think it's a difficult question I can ask you. But anyway, we'll be right back. Aloha, y'all. My name is Mitch Ewan. I'm from the Hawaii Natural Energy Institute. And I'm the host of Hawaii, the State of Clean Energy. We're on every Wednesday at four o'clock and we hope that we have interesting guests who talk to us about various energy things that are happening in Hawaii all the way from PV to windmills to hydrogen. Most of my heart, electric buses and electric vehicles. So please dial in every Wednesday at four o'clock on Hawaii, the State of Clean Energy. Aloha. Aloha, my name is Duration. I'm the host of Finding Our Future here on Think Tech, Hawaii. I'm here every other Tuesday from 1 to 1.30 p.m. Here on this show, I cover issues around sustainability, global issues that matter for young people for future generations, and other social justice issues. So please join us. It's live streamed on Think Tech, Hawaii and also uploaded on YouTube. Well, we're back with Kondo Insider. I'm here to remember your host today and we're with my good friend Sue Savio of Insurance Associates, talking about currently the HO6 policy, the homeowner's policy, when you live in a condo that you buy to protect yourself for property and liability and other types of things. So let's go back to what we were talking about before we took the break, Sue. So how about if you had a condo that had a hurricane and they assessed you $10,000 for the hurricane deductible? Does the HO6 policy cover assessments by the association besides its water claim damage? There is something called loss assessment on the HO6 policy. But when you mention hurricane, you must remember most HO6 policies do not cover hurricane. So a loss assessment for hurricane will not be covered under your HO6. If you have a hurricane policy, some you can buy loss assessment for the association assessing you a portion of the deductible, the hurricane deductible. And that's what loss assessment does. It pays the deductible for a covered loss. Association didn't have enough money because of the deductible you can charge, and all owners are charged. That's when the loss assessment kicks in. But if you don't have HO6 coverage for hurricane, it's not going to pick it up. So you're not going to find most people carry a separate hurricane policy. So what you're saying is the homeowners should have an HO6 policy, possibly a hurricane policy. But depending what the cause, the assessment by the association that may be covered, primarily what's the result of a peril. The fact that they did poor maintenance is probably not going to cover the special assessment for poor maintenance, I guess. Correct. It's not covering poor maintenance. It's not covering the fact that we didn't have enough money and reserves to replace our pipe or put a new roof on. No, not that type of assessment. We're talking an insured peril assessment. Result of a fire or some other. Fire, yeah. And if it's a hurricane, you better have the hurricane policy. Correct. To make sure it works. The other thing I've heard oftentimes is I saw this on Kauai in 1992. We were dealing with the hurricane in East East. There's this issue of, I'm going to call it sewer backup or water backup versus wind driven rain. How does that all sort of for this thing? OK, so wind driven rain that enters a unit and sometimes it comes through louvers underneath sliding glass doors. Nothing broke, it just sneaks in. There's no coverage under the property policy, H06 or the master policy for that. For wind driven rain, there has to be exterior damage from an insured peril. The tree fell and cracked the roof, the rain leaked in. Or the tree fell and hit the glass sliding door and the rain entered. Then you've got coverage for wind driven rain inside the unit. So when a roof leaks, and that's a big problem here because our condos are getting old and our roofs are in the 35 to 50 year old range. And most associations are saying, oh my, we don't have enough to completely re-roof. And so we're having a lot of leaks coming in with the rains that we've been having lately. That's not going to be covered if it's wear and tear, if it's an old roof. But if some wind blew off some shingles, we can take care of it that way if it's a wind claim. So wind driven rain is a very iffy coverage. You just can't say the rain came through and I need to have coverage. We have to find out why it entered your unit. And of course, when you have sewer backup, whether it's an association sewer, something backs up in the pipes and comes into your unit, there is coverage under your H06 and the master policy for that, for the damage done under the master policy to the building as built underneath your H06 for your upgrades, maybe it damaged your contents. Maybe you have to move out while we clean up your unit. That's loss of use that we were talking about. So you would get coverage to live elsewhere while we're taking care of it. So there's two different things when you talk about water backup or sewer backup and wind driven rain. So when you look at this H06 policy, obviously you're making a business decision as an individual on how much protection do I want? And the question I'm going to ask you next is that a lot of us have a rental property. We rent the units out to somebody. And our property manager says, name me as an additional insured. Is that common, number one? And number two, is there additional costs for naming a property manager as an additional insured? And how does that work in the industry today? Yes, many of us who have rental properties have to name our resident, I mean our property manager, who is handling our rentals, OK? They're going to get sued along with you as a unit owner for something and they may not have even done wrong but because they rent your property and handle it, they're going to be blown into this lawsuit. So there is a charge to name your property manager as an additional insured. And it varies anywhere for a couple hundred dollars but it covers the property manager just in case. And it is the exception not to name them, OK? So most rental agents require it. So there's no sense asking your rental agent, can I get out of this, I don't want a name yet, I don't want to pay the extra dollars. You know, it's required 99% of the time. If those are the property manager contracts that I've seen on these individual units, require the owner to hold harmless and identify the property manager against his actions, you know, because they're almost joined at the hip when they look at managing the property, the owner's approval to replace something, et cetera, and those kinds of issues. So it's a very important thing. Can you comment about, let's just say you didn't, did this thing name your insured? What kind of risks does it impose on the homeowner? Well, for the homeowner who says I'm not going to name the property manager or the rental agent, I don't want to do that. And then something goes wrong. How are you going to indemnify that rental agent? Are you going to pay for it out of your own pocket? I much rather would have paid a couple hundred dollars and had it covered under my own policy and give it to the insurance company to run with. So you are basically saying, I don't want to spend $200 because nothing's going to go wrong with my unit. Well, you don't know who's living in there. You don't know how often something could go wrong. And that's fine. But if something goes wrong, it's out of your pocket and not the insurance company's pocket. So I really can't stress the need to accept the fact that this is just part of owning a rental unit. You have to name the rental agent. You can take it off on your taxes at the cost of insurance against your rental income. It's minor for the amount of income you're making on your rental property. Well, I'm going to assume, and I'm not a lawyer as I've said before on this show, that if you had a claim, and typically if someone's making a claim, they sue everybody. They can find their name. I'll be everybody in the phone book they're suing. So they're going to sue the owner plus the management company. And if the management company has an indemnity clause, it's just going to force that property manager to cross claim against the owner saying, you supposed to indemnified me and insured me because the policy requires you to name me additionally insured. You're only going to expose yourself to more legal liability and consternation if you don't just name them because then insurance company will appoint a lawyer to represent both sides and equally protect you, but protect both sides under a single policy versus leaving out the dry and no one knows the answer. Exactly right. Hit the nail on the head. That's exactly how it is. Let me ask you this. And we'll get to the beginning towards the end of the show. But on how much insurance you should buy, everybody wants to spend as little as possible. And then they're always sorry once there's a claim because they leave themselves in trouble in the sense that most people will buy an HO6 policy. And then they can optionally, but should buy an umbrella. And can you kind of just talk through what you think, how you should look at it personally, how much insurance you should buy, and how the umbrella intertwines with that? Sure. Every owner when they call their insurance agent should say, I have a rental unit or I want to insure my house. And the agent should be asking them questions because you want to make sure you're buying enough coverage to protect their assets. So if somebody says, well, I have 10 rental units, well, I'm going to make sure you have quality liability, not just 300,000. I'm going to make sure you have an umbrella policy, maybe a 10 million umbrella policy, maybe a 5 million, it depends upon the value. Do you also own a home? Do you have a business that you're running that you own? In other words, all these things are your assets. And you want to make sure that you have enough liability. So the homeowner's policy or the HO6 is not enough because you can't, you could buy only a million on an HO6. So you want to have an umbrella that's going to give you additional liability in case something goes wrong. It's not property, it's strictly liability. So if you use up the million dollars on a claim and somebody wins $3 million against you, then your umbrella pays that additional. Well, I'd rather have my umbrella pay it than have to sell a unit or two or three, which I've worked hard to, or have my business ruined because something happened that I've been held legally liable for. So that's how the umbrella helps bring more liability to the unit owner, and everybody varies. Not everybody needs a 10 million umbrella, but everybody needs good quality limits. And so could it be said in more simple terms that, A, it's important you to look at the coverage you're buying and what you're getting. And you need to measure that against your personal net worth. That is, if you have a higher net worth, you may be more susceptible to big claims of lawsuits for larger amounts of money that you need to balance what your net worth is against the amount of insurance you're buying. So if you're a high net worth person, you probably want more coverage on a bigger umbrella than if you maybe you're in a middle of America. Exactly. You fit the nail on the head again, Richard. That's what you need to do. You have to look at your assets, what exposure you have, and make sure that you've expressed this to your insurance agent so they can help you buy the coverage you really need. Well, on that note, I think we're gonna thank you for being here today. And we're sorry that insurance is going up in cost, but I'm not sure what we can do about that. I think that's something we should just expect as major at the fires in California, for example. Insurance markets will be based on the whole US, not necessarily just what happens here in Hawaii. And buying the cheapest insurance isn't gonna protect you if something really bad goes wrong. So I wanna thank you for being here again. And I wanna thank our viewers for watching Condo Insider today. We hope you learned a little bit about the current market of insurance in Hawaii. And we hope you'll tune in next week where we're planning on, I think, a legislative update. Legislature's big in session right now. All sorts of things are happening. Short report is under control, but we will give you more information next week. Thank you for watching Condo Insider. Aloha. Aloha.