Life, wrote the British playwright Tom Stoppard, is a gamble at terrible odds—if it was a bet, you wouldn't take it.

And thus was born the insurance business, an entire industry devoted to placing carefully calculated wagers on the risks involved in doing virtually everything. Most people are familiar with the process of shopping for health or auto insurance. But even long-time condo and townhome owners and board members may be unaware of the ins and outs of choosing an insurance carrier for their homeowner's association. And that can be dangerous.

Patricia A. Coombs, AAI, of the J. Byrne Agency, an insurance broker based in Wildwood, explains that in some cases, an HOA's master deed and bylaws may specify the precise nature of the coverage required for the community. If the association's board of directors or management team fails to secure that coverage, they may be liable in the event of an uncovered loss—and the community may be left footing the bill.

Time for a Change?

According to Tom Heist, of the Thomas H. Heist Insurance Agency, in addition to getting coverage in the first place, boards and management companies are also obliged to shop around every few years to make sure their policies and premiums remain competitive, providing the necessary coverage at a reasonable price. Both Heist and Coombs recommend that a community reevaluate its coverage every two to three years. (Coombs, who urges that all buildings be insured for their full and accurate replacement value, further recommends that properties be reappraised at least every three years.)

That said, however, it's not wise to go overboard with the comparison shopping, advises Paul Felsen, CPCU, of Felsen Insurance Services in Denville. Felsen notes that requesting quotes from carriers too often can have negative consequences. Some associations, for example, are required by their bylaws to get competitive bids on their master policies each and every year. But the co-op and condo insurance market is a relatively small, close-knit one, and doing that can lead carriers to treat your community like "the boy who cried wolf." Too much browsing, and they may eventually decline to provide quotes at all.

Felsen does believe, however, that dissatisfaction with service received from either your carrier or your agent is a good reason to start looking elsewhere—as are excessive premium increases despite a decent loss record.

It's Not You, It's Me

But dissatisfaction can cut both ways, and a community may also find itself in the unenviable position of having been dropped by its carrier, usually thanks to a poor history of losses stemming from property damage or liability claims. Even failure to adhere to a carrier's loss-control recommendations—like replacing a boiler or repairing a roof—can result in the termination of a community's policy.

"Insurance companies are not nonprofits," Felsen says. "They're in business to make money." As such, they have an obligation to their shareholders—not to mention a legal right—to unload unprofitable risks.

And lest you assume that being dropped by a carrier is simply an inconvenience, think again. Being cut loose by a provider places a giant red flag in an association's insurance record. Some insurance companies will simply refuse to provide coverage to a community that been dropped by a competitor. Those who are still willing to do so may belong to what Heist describes as the "second tier" of carriers, companies that offer restricted coverage at much higher rates, and with much higher deductibles, than their first-tier cousins.

According to Coombs, an association that has its policy terminated may also be required to venture into the "excess and surplus lines" market. Carriers in this market are not licensed by the New Jersey Department of Banking and Insurance and are therefore not subject to all of the department's regulations and requirements. Excess and surplus lines market carriers specialize in the kind of unusual and higher risk insurance that licensed carriers typically won't handle, but working with them does have a downside.

"There's a lot of specialty coverage that excess and surplus lines market companies might not offer, but that associations need," Coombs says—including building ordinance coverage, which indemnifies an association against the expense of complying with local building code requirements in the event of a loss. (If a portion of a building were damaged by fire, for example, a basic master policy might only cover the cost of partial reconstruction—even if local codes require that the association upgrade or repair the entire structure.)

All of which just goes to show that scrupulously maintaining community property, and listening to your carrier's recommendations, can save a lot of trouble in the long run. Conversely, as Heist puts it, "Deciding not to raise the maintenance to repair the sidewalk can lead to serious consequences."

Will You Be My Broker?

The first step in shopping around for a new policy is to find a good, reputable broker. And when it comes to something as specialized as community association insurance, that doesn't mean turning to the agent who sold you your automobile policy.

"There are lots of agencies out there," Heist says. "But not all of them know condominium insurance." As a result, it's important to find a specialist, and to ask prospective brokers both how long they've been doing this kind of work, and how many associations they currently represent.

"You don't want to be the only community that agent insures—or only one of two or three," says Felsen, who has represented hundreds of communities over the past 20 years, and who currently works with over 80. (Heist's agency, meanwhile, currently represents approximately 1,500 communities).

As when shopping for a lawyer or a babysitter, it's also wise to ask for references. "Insurance is a promise," Heist says. "And if you're buying a promise, you want to buy from someone who has the integrity to deliver on it—and whose clients speak on their behalf."

Professional certification is by no means a prerequisite, but it, too, says something about an agent—namely, that they've demonstrated a certain commitment to this particular class of insurance. The letters after Coombs's name, for example, stand for Accredited Advisor of Insurance, a designation granted by the Insurance Institute of America upon completion of a series of courses covering topics such as client services and specialty property. Felsen's CPCU (Chartered Property Casualty Underwriter) designation, which is awarded by the American Institute for Chartered Property Casualty Underwriters, requires the completion of eight courses with a concentration in either commercial or personal insurance, along with a minimum of 36 months' work experience. "It's the equivalent of the CPA in accounting," Felsen says.

Why the emphasis on vetting your broker? Because he or she is the one who will ultimately vet the insurance companies on your behalf, working to secure the best policy at the best price. While a handful of carriers will deal directly with community associations (Heist names State Farm and Nationwide among these "direct writers"), most will not.

Consequently, your broker will serve as your go-between in all dealings with prospective insurers. In addition to providing potential carriers with the information they'll need to prepare an accurate quote—including the association's financial statements, bylaws and certificate of incorporation, as well as its plot plan and loss history—a broker can assess the financial strength of the carriers themselves. (Heist recommends sticking with insurers that earn an A.M. Best financial rating of A or higher.)

A good broker will also know which carriers specialize in writing community policies, and which ones offer the kind of coverage that associations need—like director's and officer's (or D&O) liability insurance, which protects board members' personal assets should complaints be brought against them in the course of their duties; and fidelity coverage, which indemnifies the community against theft by independent managing agents.

Closing the Deal

Once your broker has gathered all of the requisite information, she will fill out a series of applications and send them out to several different prospective insurers for quotes. Each individual broker typically deals with but a subset of all available carriers, however, so it's important to work with two or three different agents. It's equally important to ask each one which companies they work with, since carriers only respond to the first application they receive from any given community—which means, in turn, that any overlap between brokers will simply reduce the number of productive applications filed.

When all of the quotes are in, the brokers can then help the association's board or management team compare offers and choose the policy that best suits the needs of the community. Sometimes brokers can even negotiate with carriers to get the best deal possible—while some insurance companies won't haggle, others will. It's best to remember, though, that the initial cost of purchasing a policy is only half the story. There's also the hidden cost represented by potentially uncovered claims. As a result, Heist says, "cheaper isn't always better—or even cheaper!" Especially if your association finds itself paying through the nose due to inadequate coverage.

Once an association has settled on a particular carrier and policy, the broker involved will also handle the process of switching from one company to another. That means terminating the old policy and activating the new one, showing the new certificate of insurance to the board so they can verify that there will be no lapse in coverage, and sending proof of insurance to all of the unit owners and mortgage carriers in the community.

Invisible, but Important

While the process of choosing a carrier may be largely invisible to most community members, it can significantly affect their financial well-being—which is precisely why they should care about it.

"We're protecting the unit owner's investment," Heist says. "It's the same as a mutual fund or a bank account. If it's improperly insured, we've devalued their investment."

Alexander Gelfand is a freelance writer living in New York City.