When Insurance Claims are Denied, HOA Collections Come to the Rescue

In a report published on July 3, 2024, Newsweek Magazine observed that insurance companies are denying an extraordinary number of claims to Florida Homeowners Associations (HOAs) and condos. Being paid out for insurance claims properly as a homeowner in Florida brings you close to a 50/50 chance of being made whole, especially for HOAs. Recent data from Weiss Ratings reveals a concerning trend: nearly half of all damage claims submitted by Florida homeowners to three major insurers—Castle Key Indemnity, State Farm, and Castle Key Insurance—were denied last year. This alarming statistic underscores the difficulties many community association owners face when seeking coverage for property damage. This article explores how HOA collections come to the rescue when insurance claims are denied.

It’s Not Just a Florida Problem

States other than Florida are experiencing similar woes. For instance, California has been facing challenges with insurance claims, especially in areas prone to wildfires. Insurers have increasingly denied claims or refused to renew policies in perceived high-risk areas. In tornado-prone states like Louisiana and Oklahoma, homeowners also face significant challenges. These states often see higher denial rates due to the frequency and severity of natural disasters. Insurers in these regions are more cautious, leading to stricter scrutiny of claims.

High Denial Rates Among Major Insurers

Weiss Ratings’ analysis points to significant denial rates, with Castle Key Indemnity Company leading in Florida, denying 47.1% of claims closed last year. State Farm Florida Insurance Company and Castle Key Insurance Company followed closely, with denial rates of 46.4% and 46.0%, respectively. Although State Farm contested the accuracy of the data, the high denial rates highlight a substantial issue for homeowners and associations striving to obtain payouts.

These high denial rates can severely impact HOAs, which manage shared amenities and infrastructure. When claims are denied, the burden of repair costs falls on the HOA and, consequently, the homeowners. It is an economic reality of communal living. Sometimes, homeowners must fund repairs to their personal property and help the HOA pay for repairs to common areas due to denied claims. This situation underscores the critical importance of robust collection practices within HOAs to ensure sufficient funds are available to cover these unexpected expenses.

HOA Collections to the Rescue

Given the current insurance landscape, HOAs in Florida and other affected states must prioritize their collection strategies. Here are some critical approaches:

• A Uniform Collection Policy. If you have an emergency plan for hurricanes, you should have a plan for delinquencies. When and how will you deal with members who pay late or completely default?
• An up-to-date roster. When we read about association governance, we are often told to communicate better, which is correct. However, good communication starts with good contact information, and we are willing to “bet dollars to doughnuts” that your community has a defective roster that lacks your membership’s current contact information. Before you can communicate, you must put together a proper roster. When you have a good roster with accurate and up-to-date contact information, you can speak to the importance of timely dues payments to all homeowners, explaining how these funds pay for maintenance and emergency repairs.
• Offer flexible payment plans to accommodate homeowners facing financial difficulties, ensuring a steady flow of funds. You can do this before you send the owner to a collection agency.
• Foreclosure is the last desperate attempt to collect delinquencies. HOAs should avoid it when possible. However, it should not be off the table. If your delinquent owners know that the association will not “pull that trigger,” then you can expect delinquencies to linger, repeat, and last forever. When this happens, come this budget season, boards and managers must create a line item in the budget for “doubtful debt.” This line item adds to the financial burden of those paying on time, which is unfair. Conduct a free pre-foreclosure analysiswhen foreclosure is unavoidable to avoid passing along this unfair burden.
• Most associations can suspend amenities and voting rights of delinquent owners. Enforce this governing document provision to minimize ongoing delinquencies.
• In Florida, if you have a delinquent investor-owned unit, you can legally intercept the rent money with just one pre-written letter, as provided in statutes 718.116 and 720.3085. Click here to review the statutes for other states.
• Review your aging report every month, and if you don’t have board meetings regularly, have a system that will auto-submit a unit that has hit a delinquency threshold to collections with a board resolution. Your Uniform Collection policy should set the threshold, and your bookkeeping department should adhere to it.
• When the delinquent owner fails to make good on their obligations after the board has sent courtesy letters and requests for payment, it is time to consider a collections company specializing in HOA and condo collections. You may want to speak to Axela Technologies first.

Focusing on Collections is Proactive Financial Management

As the data from Weiss Ratings reveals, Florida homeowners face significant challenges in securing insurance payouts for damage claims, and other states are in similar trouble. This reality makes robust collections even more critical for HOAs. By implementing effective collection strategies, HOAs can ensure they have the necessary funds to manage and maintain their communities, even when insurance claims get denied.

In these uncertain times, proactive financial management and clear communication with homeowners can help HOAs navigate the complexities of insurance claim denials and maintain the quality of their communities.

Contact us today to learn more about how Axela makes HOA collections equitable, efficient, and affordable.