Dealing with insurance is rarely a day at the beach. But one way for co-op and condo boards to make such dealings a little easier is to talk to their insurance carrier and broker about changing the way the bills get paid.
There are two payment methods for insurance, each with its benefits. Direct billing occurs when an insurance carrier sends a bill directly to the board, with no intermediary. According to Barbara Strauss, an executive vice president at the insurance brokerage York International, direct billing may give a board more flexibility. For instance, some carriers will allow a board to set up a payment schedule – with 20% of the premium paid upfront and the rest in installments throughout the year. This helps boards that may not have the financial reserves to pay a large lump sum once a year.
The other option is agency billing, under which the board pays its insurance broker, who then pays the insurance carrier. While agency billing doesn’t offer the flexibility of direct billing, it simplifies insurance payments. “A co-op or condo will often have multiple policies – at least four and sometimes six or more,” says Jason Schiciano, the president of the brokerage Levitt-Fuirst Insurance. If those policies are combined into an agency bill, the agent can consolidate the payments and send them all to the client at once, instead of having the board deal with multiple bills arriving at different times. The broker is also in a position to keep the board on track with payments, reducing the risk of a late payment affecting coverage.
If a board chooses direct billing but doesn’t have enough cash on hand to make a lump-sum payment and the carrier doesn’t offer a payment plan, there is one other option: financing. “It’s like financing a car, or getting a mortgage on a house,” Schiciano says. “Basically, you’re taking out a loan. The loan pays off the insurance policy in one lump sum upfront, and then the co-op makes installment payments – not to the carrier and not to the broker, but to the finance company.” Unlike direct billing to the insurance company, these payments do accrue interest. But for a board with little money and few options, it may be the best way to make sure insurance coverage doesn’t lapse.