When your association renewed its property insurance in 2021 or 2022, the building’s insured value was set based on construction costs at that time. Since then, those costs have not come down. They have gone up and in most markets, they remain 15 to 20 percent above pre-pandemic levels, according to Gallagher’s 2026 construction market analysis.
If the insured value of your association’s property hasn’t been formally updated since then, there is a reasonable chance the community is significantly underinsured. The time to discover that gap is not during a catastrophic fire, flood, or structural failure, it is now.
Why the Numbers Matter More Than Most Boards Realize
Property insurance for community associations is not simply about having a policy in place. It is about having a policy that will actually fund a rebuild after a total or major loss. When insured values lag behind actual replacement costs, the consequences arrive in two forms.
The first is straightforward: if the building is insured for less than it would cost to rebuild, the insurance payout will not cover reconstruction. The shortfall becomes the association’s problem which typically means a special assessment on homeowners at the worst possible time.
The second consequence is less widely understood: the coinsurance penalty. Most commercial property policies include a coinsurance clause requiring the insured value to equal at least 80 or 90 percent of actual replacement cost. If insured value falls below that threshold at the time of a loss, the carrier is entitled to apply a coinsurance penalty, reducing the claim payout proportionally, even on a partial loss that would otherwise be straightforward. An association that insured a clubhouse for $1.2 million based on 2020 valuations, when 2026 replacement cost is $1.6 million, could face a significant penalty on even a partial fire loss.
What an Insurance Appraisal Does
An insurance appraisal is distinct from a real estate appraisal, which establishes market value. An insurance appraisal determines the actual cost to rebuild or replace a structure at current construction prices. The appraisal accounts for current material costs, labor rates, code compliance upgrades that would be required in new construction, and debris removal.
According to the Community Associations Institute, insurance appraisals are considered best practice for any association with shared buildings and should be updated every three to five years or whenever significant renovation, addition, or meaningful construction cost changes warrant a review. Associations that haven’t reviewed property values in three or more years are the ones most likely to discover a meaningful gap.
What to Do Before the Next Renewal
Start by asking when the property was last formally appraised for insurance purposes and whether the current insured value reflects today’s construction costs. If the answer involves an estimate, a prior-year escalation factor, or an appraisal more than three years old, an updated appraisal is warranted. For associations with January renewal cycles, July is the right time to initiate this process. Appraisal results typically take four to eight weeks, leaving adequate runway for the renewal conversation. Specialty programs for community associations include property coverage structured around accurate replacement cost valuations, with program advisors who can facilitate the appraisal referral.
Ready to confirm your association’s property is insured for what it would actually cost to rebuild today? The team at Tooher-Ferraris has been helping community associations since 1932. Contact us today to schedule a no-obligation program review.
