You may have recently seen news reports or read articles containing reports of increasing strata insurance premiums and insurance deductibles. Given the state of the strata insurance industry, I’m sure more of these reports are still to come this year as Strata Corporations obtain their insurance renewals or, are faced with the news their Insurance Broker is having difficulty obtaining coverage for the property.
The Underwriters, who are the institutions which are financially responsible to fund the insurance claims when they occur, determine the premium and deductible limits. These institutions are mostly international firms and are the same firms funding insurance claims worldwide. This is an important point as one of the factors to blame for the increases in cost are widespread natural disasters such as the California and, more recently, Australia wildfires. Despite who you use as an Insurance Broker (HUB, BFL, CMW etc), the Underwriters for your policy are often the same small group of financial institutions. In recent years, underwriters have either pulled out of property insurance or, have increased costs to make up for the lack of insurance reserves due to increased claims and the aforenoted natural disasters. This has left an even smaller pool of insurance providers who are requesting higher premiums and increased deductible limits, which will have a direct, and in some cases drastic, effect on Strata Corporations and the Owners within those corporations.
It is important to note, not only are Strata Corporations mandated by Provincial law (the Strata Property Act) to obtain specific insurance coverage, insurance coverage is typically required by Mortgage Brokers when unit Owners obtain a new mortgage or renew an existing mortgage. Additionally, the Strata Corporation’s insurance responds not only to property damage claims, but also legal claims, injury, system breakdown, privacy claims and provides much needed legal advice to the Strata Councils as they exercise the powers and perform the duties of the Strata Corporation.
One or more of the following issues may occur upon obtaining your renewal and it is very important for the Councils and Owners to be aware of the following:
Increased Premiums
An insurance premium is the total yearly cost of the insurance coverage. The insurance premium is a line item in the Strata Corporation’s annual budget and is typically labeled simply as “Insurance”. For the majority of the Strata Corporations in BC, the insurance premium is one of the largest line items in the strata’s budget.
Over the last two months, we are seeing drastically higher insurance premiums, in some cases more than four times the amount of what has historically been the premium. As the premium is a budgetary line item, and even more so a large amount, drastic increases will have a direct, and impactful, effect on the monthly strata fees Owners are responsible to pay.
Furthermore, these increases are coming on short notice as we have been receiving the updated polices from the Brokers just prior to the renewal date. This being due to the issues the Brokers are experiencing obtaining coverage and terms from the Underwriters.
Increased Deductible Limits
Along with increases in insurance premiums, we are seeing massive changes to deductible limits. A deductible is a specified amount of money the insured (the Strata Corporation or induvial Owner) must pay before an insurance company will pay a claim.
Typically for our client base, deductibles for items like water damage were in the range of $5,000.00 - $25,000.00. We are now seeing a typical minimum deductible of $150,000.00 in the new policies. In the case of a deductible of $150,000.00, a Strata Corporation or an Owner who is responsible for the source of the loss, would have to pay up to $150,000.00 before there is relief from the insurer. As the majority of losses in a townhouse style or four-story condo style strata are well below $150,000.00, there will be no assistance from the insurance companies to fund repairs. The Strata Corporations will be forced to increase funding to their Contingency Reserve Funds for unforeseen repairs which were previously paid for by the insurers.
Upon receiving the new insurance policy, Owners should also contact their home insurance providers to ensure they have adequate coverage.
Partial or No Coverage
Finally, there appear to be cases where the Brokers cannot obtain coverage, or can only obtain partial coverage, for the Strata Corporation. In some cases, the underwriters are listing repair conditions or, component upgrades, which must be met for coverage to be provided. In older buildings, where there will most likely be older systems or outdated building materials which may not have been addressed, there will typically be a high cost to upgrade these components/systems. These properties may be faced with an even greater financial burden. This is a worst-case scenario; however, it is a scenario which has occurred and is a reality.
In conclusion, any one or, a combination, of the above issues could have a major impact on a Strata Corporation and/or the individual unit Owners. As per our fiduciary duties under the Real Estate Services Act Council Rules 3-3 (d), we would advise the Strata Corporations and Owners seek professional insurance and/or legal advice from their providers. For the Strata Councils of our Clients, we highly recommend they advise Owners of this insurance alert and please speak to your Teamwork Representative if you have further questions or concerns.
Tom Quinton - Managing Broker
