Defined. In a "shared umbrella" program (also known as group or pooled insurance), unaffiliated entities are grouped together in a single insurance policy to save costs. An example is CIBA insurance. Typically, a management company might obtain a single group policy covering all the associations in its portfolio. It means the insurance policy is not in each association's name. Instead, associations in the pool are made additional insureds. There are two types of shared umbrella programs:
- Shared-Limit Umbrella. Under a shared limit umbrella, everyone in the program shares the insurance policy's limits.
- Shared-Policy Umbrella. In this program, all associations program share one policy, but the limits of that policy apply on a "per location" basis.
Potential Problems. Shared or group insurance can offer lower premiums, but there are trade-offs that raise concerns.
- Additional Insureds. Because participants in group programs are "additional insureds" instead of being the "First Named Insured," they receive a certificate of insurance rather than an actual complete insurance policy. That makes notification an issue since an entity other than the association is the First Named Insured. This means that the association may not be notified if the policy lapses due to the non-payment of premiums or if the carrier cancels or modifies the coverage. Another potential problem is if the management company holds the insurance in its name and the association changes management, it could unexpectedly lose coverage.
- Limits Exhausted. In the shared-limit plan, if one association makes a claim that exhausts the limits of the policy, all other associations in the program are left with no coverage. Policies are written assuming no single disaster will impact them all. Since no board member knows precisely how many associations are sharing the limit (and the value of each of those properties), it’s impossible to adequately assess whether the shared limit is sufficient to cover a significant loss impacting multiple locations.
- Payouts Limited. In the shared policy plan, policy language often limits the number of payouts per policy year. That could leave participants without coverage.
Recommendation: The risks described above do not necessarily mean the policies should be avoided--it means that boards should be aware of the risks and talk to their insurance agent to make an informed decision before taking on those risks.
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