Close to Home

Condo ownership has skyrocketed in metropolitan areas across Canada over the past three decades. Between 1981 and 2006, the number of homeowners who owned condos increased more than five times, the Canada Mortgage and Housing Corporation notes in its September 2012 report, A Profile of Condominiums in Canada, 1981-2006. Today, condos are the fastest-growing housing sector in many cities across the country, with new condo builds reaching an all-time high in 2012, adds the Metropolitan Condo Outlook: Winter 2013, released by The Conference Board of Canada and Genworth Canada.

Anyone reading the news about real estate development over the past few years will have noticed that many people in the financial and real estate industries are concerned about overdevelopment of urban areas. Others have been predicting the timing and size of a great burst in the housing market bubble.

One thing that has not been discussed at length is the lack of understanding that owners have about their condo insurance.

Allstate Canada and Abacus Data recently conducted a poll to see what Canadians do and do not know about their insurance. The results show that the majority of people polled across the country are not sure what their condo insurance covers. Below are some findings:

• 61% of Canadian condominium owners taking part in the poll do not know or incorrectly assume their building’s insurance will cover damage to another unit from water or fire that originated in their unit;

• 74% of respondents looking to purchase a condo in the next few years do not know what their personal insurance should cover versus what the condo corporation’s insurance should cover;

• only 39% of condo owners and 26% of condo buyers polled know that the belongings of a roommate or boarder are not covered under their personal condo insurance policies; and

• 21% of condo owners taking part in the survey are not aware that the condo corporation’s insurance is responsible for incidents, such as falling concrete and shattering glass from condominiums.

Not understanding home insurance policies can result in costly repairs and damages that these buyers may not be able to afford. In short, Canadian homeowners’ lack of knowledge could cause them to be under-insured and this should be top of mind for leaders in our industry.

QUESTIONS TO ASK

What does this mean?

Condo owners need two types of insurance. One – provided by the condo corporation – covers damage to the building itself and liability in common areas. The other – purchased by the homeowner – covers the contents of his or her home and protects against personal liability.

If condo owners do not have sufficient coverage, if they are not asking the right questions of their condo corporations, or if they do not understand what they are responsible for, then they could be at risk. As industry leaders, it is important to take on the responsibility of educating customers about their insurance and, more specifically, about their condo insurance.

Why do condo owners need two types of insurance?

Customers need to know that there is a difference between insuring a home and insuring a condo. Condo owners are more likely to be directly affected by what happens in their neighbours’ units than they may be in a house.

Allstate Canada’s data shows that the most frequent claims made by condo owners are the result of water damage, and the most costly are the result of a fire. It is important for insurance providers to advise their customers to find out what the condo corporation’s insurance covers and what their insurance needs to cover.

A decade ago, the big issue in condo insurance was betterments and improvements, and making sure customers had sufficient insurance to replace or repair costly upgrades they may have added to their condos. Recently, the trend seems to be condo corporation policies with significantly increased deductibles, a move that places a responsibility on the unit holders beyond what the policy may have traditionally provided.

Insurers need to make sure that customers are protected in the event their condo corporations assess them with a portion of the deductibles.

A condo owner’s personal policy will cover the inside of their unit, their belongings and their liability to others in the building. In some cases, personal condo insurance can also cover the homeowner for unforeseen expenses that result from the condo corporation’s coverage coming up short.

How can condo owners avoid getting themselves into trouble?

Although the answers to several important questions about insurance could save people from headaches and unforeseen expenses when purchasing a condo, many Canadians do not know what they should ask. For example, consider the following survey results:

• When purchasing a condo, only 34% of Canadian condo owners and 45% of buyers polled asked the condominium corporation if it had recently increased its requirement for what should be covered by a condo owner’s personal insurance. After a high number of a certain type of claim, the building may no longer be eligible for a particular type of coverage, and so the onus may fall on the owners.

• Only 32% of owners and 48% of buyers taking part in the survey asked if the condo corporation had ever raised the deductible on their insurance. Knowing the condo corporation’s deductible – which may have been increased to save premium costs – is critical in obtaining adequate personal condo coverage.

• Only 22% of owners and 44% of buyers who responded asked if the cost of their condo corporation’s insurance premiums have ever gone down. Prospective buyers should be wary of any buildings with large deductibles and a high number of claims made in recent years, which could indicate the building’s ability to be insured could be in jeopardy.

INSURERS CAN TAKE THE LEAD

To reduce the threat of being under-insured, insurance providers can explain what is not covered under regular contents coverage. Each condo corporation will have a unique insurance policy and it is important that condo owners are made aware no two buildings are alike.

Condo owners are encouraged to take an inventory of all their belongings. Doing this as they determine the limits for their coverage will ensure they are adequately covered. A common cause of under-insurance is the customer not realizing the total value of all belongings.

Homeowners need to be made aware of whether or not their items in storage, their car in the underground or their bicycle outside are covered by the condo corporation’s insurance policy or their personal insurance policy. If condo owners plan to rent their home, they should also ensure tenants have insurance to cover their personal items.

Condo buyers should be reminded that not all people involved in the real estate process will understand the complexities of condo insurance. Asking for advice and information from professionals who do not work in the insurance industry is not recommended.

Current and future buyers should seek advice from people with specialized insurance expertise, not just those who may be familiar with the home-buying process.

As well, prospective condo owners should be sure to include the cost of home insurance in their home-buying budget and take a look into the financial health of the building in which they are interested.