6 minute read
Natural Disasters
Tips To Thrive Despite Them
By Lorena Sterling, CAFM
"It Never rains in Southern California...it pours, man, it pours." - Albert Hammond
California residents can rely on certain weather conditions, including natural disasters that our climate will deliver to us each season, particularly earthquakes, flooding, and wildfires. Each of these causes damage and wreaks havoc on cities and HOAs.
During budget season, some communities plan for the upcoming fiscal year’s expected operating expenses, preventive maintenance, and reserve funding plans with these disaster aftermath plans in mind. On the other hand, some communities ignore the potential for disaster, thinking, “It will never happen to us.”
Until it does.
Over the last three years, associations have faced the task of becoming creative with their funding plans to prepare for the repercussions that unforeseen weather events and disasters may bring to the community. The clean-up will quickly identify how well the association has prepared in the event of a catastrophic wildfire or extreme flooding from a tropical storm.
The most challenging phase of a disaster is the aftermath. A solid disaster recovery funding plan will ease the pressure of the clean-up stage while bringing back some normalcy after the disaster has swept through the community, even if insurance funds are delayed or denied.
We are seeing this firsthand in the desert regions of California after a tropical storm caused massive damage to infrastructure and buildings. Some communities were prepared and are starting to resume normal life. Others were not and are still living in chaos.
Here are some things you can have your boards and communities do to be a well prepared community instead of one that is reactive due to lack of planning:
Saving For An Insurance Deductible
Low premiums, most likely paid by operating funds, will have a high deductible, and vice versa. Many communities go for the low premium with a high deductible scenario to minimize an increase in monthly dues. Doing so is just fine as long as the community has a funding plan to save up for that hefty deductible should it ever become due. An additional reserve account can be opened to separate the allocated reserve funds from the insurance deductible funds. However, some reserve analysts will incorporate the deductible into the reserve study, so isolating these funds is unnecessary.
Although the community is funding the reserve components by its reserve analyst’s recommendation, an additional amount should be allocated into the insurance deductible funds and accounted for in the operating expenses. Creating an extra line item for the insurance deductible through the reserve account will avoid an annual budget surplus.
On their website, the HOA law firm Adams Stirling, PLC recommends: “The best way to handle the issue is to create a separate [deductible] fund but keep the monies in the same account as the reserves. Associations can put a line item in their budgets for an “Insurance Deductible Fund” and contribute to it over two or three years. If the insurance deductible is $10,000, boards could budget a modest $278 per month to the fund. The insurance deductible would be fully funded at the end of three years. At that point, the contribution could be discontinued until an insurance claim is made, at which point the deductible would be replenished with new contributions.”
Proper Insurance Coverage
In many communities, purchasing flood, earthquake, or wildfire policies has been a debacle in recent years. California has faced a hike in insurance premiums to cover the inflation of repairs and the extreme number of filed claims by policyholders. In early 2023, many big-name insurance carriers halted new requests for policies just to ensure the coverage to their existing policyholders. Cal Fire reports as of October 2023, there has been fire damage to 312,739 acres. In 2022, there was fire damage to 289,391 acres. So, what are your HOAs to do?
Placing this in the hands of a vote by the membership may be a fair route for the HOA. One community that recently purchased a new earthquake policy saw the price double from one year to the next and quickly turned to putting the issue up for membership vote.
With a close vote of 52% of the members approving the cancellation of the earthquake policy, this enabled the members to avoid an assessment increase of about $100 per owner per month.
However, some communities in flood zones committed to the increased premiums even though they were hard on the budget or required a special assessment. Those communities were thankful that they had a funding plan to cure the damage after Hurricane Hilary hit.
Preparing For Extreme Weather Conditions
Flooding, earthquakes, and wildfires will continue to cause extreme chaos in an unprepared community. In addition, the planet appears to be warming, which increases the likelihood of extreme weather conditions compared to those we’ve seen in the past hundred years. Unexpected events like snow near the coast and flooding in the desert will happen.
Follow preventive maintenance plans the experts recommend, such as annual drain cleanouts, grading low areas to flow into the drainage, creating exit plans, providing local resources in advance, locking up trash enclosures, and storing the patio and pool furniture. Perhaps have a plan should snow or ice removal be required, even if your community has not had to deal with that previously. Many of these precautions lower the risks of homeowners injuring themselves or causing damage to the roofs, streets, or structures.
The Aftermath Of Disaster
The calm after the storm is the time to assess and get to work with the help of the plan put in place before the disaster itself. California has yet to experience a large quake in some time; however, according to the Uniform California Earthquake Rupture Forecast, in the next 30 years, there is a 99% chance a 6.7 magnitude quake will strike somewhere in California. According to the U.S. Geological Survey, “The Big One” is modeled to be a 7.8 magnitude quake causing approximately $213 billion in economic losses.
Considering these statistics, it is time to set emergency protocols for your community if they are not already in place. It would also be wise to update existing emergency policies regularly. Emergency lines may be down, and road closures or blockages will be an issue for emergency units to provide immediate attention.
The tropical storm caused by Hurricane Hilary hit the Coachella Valley, which had not experienced rain or flooding of this sort in 80-plus years. Sinkholes, mudslides, downed trees, and areas where emergency vehicles could not enter trapped patients in an elder care facility. Rescuers had to get creative and use a tractor to carry the patients out of the wreckage. These are a few scenarios that can be discussed with your community to create the safest plan for the well-being of everyone.
