Climate change has permanently disrupted existing risk assessment models and community associations (HOAs or homeowners' associations) are facing an insurance crisis, with underwriters cancelling coverage or raising premiums to exhorbitant levels — or pulling out of states altogether. The brutal reality of climate change means we can no longer rely upon market forces or regulation of carriers for a solution. The time has come to consider regulation for both carriers and HOAs themselves to become more proactive in risk management and mitigation.
This site has been created to allow those living in and serving community associations as well as insurance carriers to participate in crafting a new regulatory environment that recognizes the reality of climate change, fairly addresses carrier concerns while elevating risk management awareness and mitigation by HOA directors and members. The forum on this site allows all industry stakeholders to participate.
You can help to shape this program before we take it to our friends in the legislature to help bring it into realization.
Here are links to the proposal draft. You can view it online or download a pdf. Or download a Word version so you can edit it yourself should you wish to suggest substantial changes.
Of course, you can contribute ideas, comments and suggested changes simply by going to our forum. But if you're an attorney wishing to suggest legislation or other substantial material, downloading and editing the Word version would be better.
While this program originally was created with the California legislature in mind, community association professionals, directors, members and legislators in any state can participate here in crafting a program specific for any state. (If a folder has not yet been created on the forum for your state, we'll create one for you. Just click here to request it.)
The insurance crisis presents challenges to both (1) remediate HOA insurability through carrier regulation as well as (2) improve HOA governance and risk management through community association regulation. Therefore, discussion of proposed regulation will be divided into two primary sections:
1. Regulation for carriers would be focused upon...
A. Incenting and inducing carriers to increase transparency of their risk-assessment criteria and ratings — without which homeowners are helpless and without guidance to reduce risk — and
B. Incenting and inducing carriers to prescribe a mitigation program for higher-risk applicants they could operate upon, success of which would qualify them as customers. The resulting increase in pool of potential customers should add to their profitability.
2. Regulation for homeowners associations, to incent HOA members to become more knowledgable of best practices in HOA governance and rudiments of HOA law, and more proactive in risk management and addressing carriers' concerns — to meet them half-way, so to speak — while also substantially improving the caliber of HOA governance.
At this stage I'm happy to report a substantial amount of work already has been done by the California Insurance Commissioner, legislators and citizen and industry groups. Special appreciation goes to Insurance Commissioner Ricardo Lara, who has worked with all stakeholders to meet this historic challenge presented by climate change. Also, CAI's California Legislative Action Committee Wildfire Insurance Task Force continues to contribute substantially to this project. If you are aware of others who merit special mention, please let us know.
You can read more details of the scope of this work in the proposal. Given the volume of contributions, we'll simply provide links here to some of the principal contributors so you can review the status of their work.
Grace Gedye of CalMatters, a non-profit news organization that represents itself as a source for “Nonprofit, nonpartisan state news,” fairly characterizes the state’s objective in the title of her May 2, 2023 article, California wants to force insurers to reward homeowners for fireproofing homes:
Some proposed legislation could be adapted for tornados and hurricanes, particularly with respect to hardening of homes and structures through conformance with construction codes intended specifically for resistance to storm damage. Flooding presents a spectrum of more difficult factors beyond the scope of this proposal. HOA regulation discussed below, however, would be applicable and helpful to all HOAs.
Developing extreme conditions and permanence of climate change warrant elevated participation in risk management by HOAs — as partners with the insurance carriers so both can benefit. But unlike insurance carrier regulation in this effort, HOA regulation hasn't yet been proposed, till now.
Persistent issues with HOA risk management and peculiarities of the HOA construct overseen by voluntary and often reluctant directors warrants special consideration when contemplating regulation. Therefore, the first part of the proposal includes a virtual, almost forensic analysis of the CID legal construction in support of the proposal elements that follow.
When homeowners associations began to become popular in the late 1960s, legislators rushed to create a patchwork of laws that would make this new type of corporation more “democracy-like.” They created a new type of corporation and installed parts of Government Code to give it some characteristics of a democracy. But code governing corporations and government are quite different and often conflict. Legislators continue to this day patching and modifying code to address these differences and adapt to realities of a volunteer-driven corporate-democratic government hybrid.
Community association directors can profoundly affect the value of homes and the living environment. Lapses in HOA oversight and risk management by well-meaning but untrained volunteers has resulted in devastatiion to communities and spawned copius legislation to regulate homeowners associations. But legislative efforts to mandate volunteer HOA directors to be trained or licensed haven't worked.
Serving as a volunteer on a community association board can be a thankless job, requiring many hours each month, taking valued time from families and time to recover from stress of work and other household and civic activities. Recruiting volunteers can be difficult enough without imposing added burden, which may only discourage potential volunteers.
The conundrum of requiring competence vs. ability to recruit willing directors, albeit underinformed, has long plagued community associations. Whereas amazing organizations — such as CAI (Community Associations Institute) and ECHO (Educational Community for HOA Homeowners) — have created a wealth of educational resources for volunteer directors, education remains elective and undersubscribed. And detrimental consequences will continue.
The program would not compel education; historically that has not worked for volunteer-dependent organizations. Community associations may continue to operate as they have without fear of a requirement that might discourage prospective volunteers. However, for those associations that encourage their directors to pursue training and become certified, numerous benefits await.
Provides template legislation any state could adopt that sanctions a certification authority to...
And can you imagine an HOA board — knowing they must send their report card to their members annually — not doing everything they can to elevate their rating?
This plan provides components heretofore absent in HOA oversight — essential for any business to ensure quality performance: (1) metrics and (2) feedback, enabling (3) adjustments to effect improvements.
Please, have a look at the components below, or view or download the proposal, then share your thoughts here.
Although language in the examples is for "California," there is no reason a program like this couldn't be adopted by any state.
The legislature would pass a bill (see legislation draft) establishing a board to administer the plan described herein. The authority may be called, for example, Board of Certification for Community Association Directors (BCCAD).
The bill would include standards for an educational program known as, for example, the ‘COMPETENCE’ training program, an acronym for Community Oversight and Management Principles Education To Engender Community Excellence. (This acronym also complements the preferred means of attaining certification — through the Competency Based Education method. See the US Department of Education explanation of this method.)
The legislation would authorize the authority to set standards for and administer tests and grant certifications to members of common interest developments who meet standards of knowledge of risk management, best practices and basic legal requirements for governance of state community associations.
The board would work with educational organizations such as CAI (Community Associations Institute) and ECHO (Educational Community for HOA Homeowners) and others to facilitate training and continuing education to maintain the certification credential.
Election materials would identify any certified candidate with an asterisk, with a footnoted explanation, raising awareness of the value of the credential.
The BCCAD would administer and maintain a community association rating system wherein ratings are derived principally by the proportion of communities' directors certified under this program, frequency of reserves studies and critical structures inspections, how well reserves have been funded, willingness to maintain continuing education and certifications, whether they subscribe to publications from community association educational institutions, and their willingness to maintain relationships with legal and community association management professionals.
Director certifications as well as community ratings would be accessible online and a community rating certificate may be downloadable at any time.
Community associations would be required to disclose their ratings to members annually.
Insurance companies are rewarded when they insure communities with high ratings whose directors have undergone training on risk management, legal responsibilities, best practices and requirements for structures inspections and reserves studies. Insurance may be one of the largest budget items affecting monthly dues. Therefore, lower risk-adjusted premiums can be a potent incentive for directors to increase attention to more competent oversight and risk management.
Ratings also may be used by real estate firms when marketing and promoting properties within communities and by vendors who may choose to offer discounts or special terms for community associations that maintain a certain rating.
Community boards and members may take special pride in maintaining high ratings as other benefits also await.
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