Cooperative Insurance

What Is Cooperative Insurance?

Cooperative (or co-op) insurance is a type of property-casualty insurance for owners of co-op apartments (or other cooperative organizations). These policies generally cover losses to their building or individual units.

For residential co-ops, this type of coverage includes burglary, fire damage, and liability, among others. Generally, a co-op building provides coverage for common areas such as the hallways, foyer, basement, roof, elevator, and common walkways. The co-op association's insurance policy generally protects the building, not the individual owners' apartments, unless the damage occurs as a result of something under the association's jurisdiction.

Understanding Cooperative Insurance

Purchasing cooperative insurance lets policyholders pool together with others who have similar risks to purchase more extensive coverage at a more affordable rate. For instance, trade unions will often offer some form of co-op insurance, since there may be certain risks that everyone in the union is exposed to, and it makes economic sense to purchase coverage as a group. 

The typical model for a cooperative is everyone involved in the cooperative that pays for the insurance receives a portion of ownership of the policy that is proportional to how much they pay. So, those who pay for 5% of the total policy would receive 5% ownership.

Special Considerations

In the case of residential buildings, it is advisable to find out what the building association's insurance policy covers. When you buy a co-op apartment (a housing unit of which you hold a share of the corporation that owns and manages the unit), the building will already have an insurance policy that protects itself and shareholders from claims resulting from lead paint exposure, sewer backups, earthquake damage, and other events that might affect the entire structure.

An individual shareholder's apartment and belongings aren't directly covered by the co-op association's policy. There might be exceptions, however, if some sort of damage is caused by an occurrence that does fall under the building's policy. Usually, this is something relating to its infrastructure. For example, if a leaky radiator damages the floor within a unit, or a dripping water pipe causes cracks in the ceiling, the building might shoulder the cost of repairs.

Cooperative Insurance and American Healthcare

Historically, in the debate over U.S. healthcare reform, healthcare cooperatives have been posited as an alternative to both publicly funded healthcare and single-payer healthcare. The Obama administration brought up cooperatives as a possible model for universal healthcare in the United States. As proposed, this future health insurance cooperative would not have been run or owned by the government, but it would instead receive an initial government investment and then be operated as a nonprofit organization.

There once were numerous rural health cooperatives established by the Farm Security Administration (FSA). From 1935 to 1947, these programs offered comprehensive medical care to low-income farmers, sharecroppers, and migrant workers. At their peak, the cooperatives offered healthcare services to more than a million migrants and 650,000 farmers. Most of these healthcare cooperatives closed or merged over the years because they lacked a sufficient economy of scale.

Still, health insurance co-ops continue to exist in some states across the United States. The Affordable Care Act (ACA) of 2010 included provisions for cooperative health insurance programs called Consumer Oriented and Operated Plans (CO-OPs). At one time, 23 of the plans operated in various states as qualified nonprofit health insurance issuers. As of 2019, only four plans remain operational in five states: Montana, Idaho, Maine, New Mexico, and Wisconsin.

The National Association of Insurance Commissioners cites various reasons that might have contributed to the high rate of failure among these cooperatives. New cooperatives were faced with a very competitive marketplace that already included many well-established and well-funded health insurance companies. Cooperatives faced many barriers to entry, such as dealing with unfamiliar risk pools, lower payments than expected, higher or lower enrollment than expected, and the high cost of rendering administrative services.