The Condo Crisis No One’s Talking About: Insurers Are Walking Away From HOAs

Insurance premiums are increasing for many homeowners, as insurers blame the rising coasts squarely on climate disasters. For HOA owners, the issue is compounded, as their homeowners association fees are also skyrocketing due to the association’s burdens.

A recent Realtor.com® report shows that 40.5% of current listings have an HOA fee, up from 39.2% the prior year.

With more homeowners than ever in condos and townhouses, the additional financial burden of paying more in dues to cover the HOA-provided insurance is a hot topic of conversation.

“With a down payment and closing costs up front, and then principal, interest, taxes, and insurance every month after that, purchasing a home is already a financially daunting task, before adding in the rising cost of HOA dues,” Danielle Hale, Realtor.com chief economist said in the report.

But here’s the real question: What happens when the HOA can’t secure insurance for the common property?

What is an HOA master Insurance policy?

An HOA master insurance policy differs from an individual homeowner policy.

Simply put, “it acts as a protective umbrella for the shared spaces and liabilities within a homeowners’ association (HOA) community,” according to HOA Member Services.

It covers common property and shared amenities, such as playgrounds and common-use buildings. In other words, it protects the HOA—not your home.

However, it also indirectly protects homeowners, as natural disaster damages that can destroy common property could cost thousands of dollars to individual owners without coverage.

Fees vary depending on several factors, including the type of construction. For instance, the Realtor.com report notes that “newly constructed homes are much more likely than existing homes to be subject to HOA dues.”

What insurance do HOA fees cover?

The HOA fees cover all shared amenities, which vary by complex.

These can include “parking lots, lobbies, elevators, tennis courts, and any other spaces or features your community shares,” according to Nationwide.

 It’s important to note that some HOA fees also can include very specific types of coverage.

For instance, a “bare walls” policy stops at your drywall, studs, and insulation; but policies with “single-entity” or “all-in” coverage may cover your cabinets, flooring, and even any built-in appliances,” Nationwide adds.

It can also include liability protection in the event of a lawsuit resulting from an injury on the residence’s premises.

Nationwide adds that the policy also covers common areas such as elevators, hallways, swimming pools, or tennis courts.

Andy Saintilus, a real estate investor in Miami and founder of We Buy Doors, explains that pricing can also vary significantly depending on the size and location of the property.

Saintilus says that in South Florida, where properties are frequently exposed to hurricanes and flooding, HOA insurance costs have risen sharply in recent years.

“A large condo complex in Miami could see premiums rise by 20 to 30% year over year, driven by both increased property values and climate-related risks,” he says, adding that in smaller or less disaster-prone areas, pricing may be lower but still subject to market fluctuations and claims history.

“The cost is typically split equally among homeowners, which increases the monthly HOA fees residents pay, sometimes making them unaffordable for some.”

It’s also important to note that while this umbrella policy is essential for HOA owners, they should also get their own insurance policy to protect their own walls.

Why insurance companies are dropping HOAs

Unfortunately, insurers are increasingly dropping HOA clients, which is on par with what they are doing to individual insurance policies as well. In both instances, skyrocketing claims and the increase in climate risks is driving the change. 

Brett Johnson, owner of New Era Home Buy, says that in Colorado, for instance, hailstorms and wildfires have boosted premiums, “doubling and tripling HOA fees in some cases.”

In turn, if an HOA loses insurance coverage or premiums spike dramatically, homeowners may struggle to find coverage, and lenders will stop granting new mortgages in the complex, he says.

“Homebuyers are catching on to this trend and beginning to stay away from condos and townhomes and opting for single-family housing in an attempt to escape these increasing costs,” Johnson says. “Anyone considering a condo should carefully review the HOA’s financials and insurance situation.”

Saintilus notes that insurers face mounting losses, so they avoid insuring HOAs or raising premiums to unsustainable levels, citing what’s happening in Florida.

“This trend is driving up HOA fees for residents and making it more difficult to find affordable insurance coverage,” he says.

What can you do if the HOA loses its insurance?

If an HOA loses its insurance, it can be a significant concern for homeowners, especially if something happens in common areas, as they might have to shoulder the costs.

State-affiliated insurance

Bobbi Rebell, a CFP and personal finance editor at CardRates.com, says homeowners can also look for insurance coverage from other providers. States with high-risk properties usually have state-affiliated insurance options.

“They may not cover the entire value of the property and have other limitations, but they are at least one resource,” she says.

Supplemental insurance

In addition, she notes that homeowners can add Loss Assessment Coverage to their homeowner’s policy. This coverage can cover their share of damage to the lobby or other common areas if they aren’t covered or fully covered by the HOA’s master policy. 

Wesley Kang, founder of Realtor 1099Cafe and a real estate agent who manages properties across Los Angeles, says he is watching the “whole game change.”

“Master policies are taking brutal turns lately, and I have a beachfront complex that just took a massive hit,” he says. “Unit costs jumped from $400 to $900 monthly, and the coverage got slashed in half.”

He says he has been pushing clients to take supplemental coverage, after an association got stuck with a $30,000 pool repair when their master policy denied it.

“My clients with extra coverage didn’t pay a dime. That’s why I never stop talking about backup coverage,” he adds. “In my years doing this, I’ve never seen insurance matter more. Standard coverage just isn’t enough anymore.”

Legal action

Another option: Homeowners may need to consider taking legal action or even dissolving the HOA, according to Saintilus.

Experts say it’s crucial to understand the fine print of both your personal and HOA insurance policies, as coverage gaps could expose you to significant financial risk.

“As we continue to see natural disasters and climate change create more challenges, the HOA insurance crisis will only likely worsen,” says Ping Wang, real estate expert, architect and founder of QY Models.

Wang adds that he strongly encourages homeowners to regularly review both their HOA’s insurance policy and their coverage.

“Stay informed, ask questions, and be proactive in seeking solutions if the HOA insurance market continues to falter,” he says. “It may just be the most important step you can take to protect your investment and your peace of mind.”