Why insurers urge caution on regulating condo deductibles

The government of Quebec should take a “wait-and-see” approach to define what is a reasonable or unreasonable deductible for condominium insurance, the Insurance Bureau of Canada (IBC) told Canadian Underwriter last week.

The provincial finance ministry recently held a consultation prior to proposed regulations on condo insurance. Aspects of Bill 141, which changes regulations related to the financial services sector, come into force in principle on June 13, 2019, one year after assent.

Because Bill 141 proposed many changes, “we suggest that we wait and see how the market adjusts to all these changes to see where the issues are,” said Pierre Babinsky, director of communications with IBC. “Then, if there is a need, then go ahead with specific rules that would define what is unreasonable or unreasonable.”

If one condo building performs all the right preventive maintenance and puts together all the right preventive measures, they may prefer to have a higher deductible, Babinsky said. One that may not be as prepared may want to reduce the deductible in case there is an incident. “Insurers should still have the capability to assess the risk discussed with their clients in terms of what is the best package for them regarding the deductible, but also the premium.”

If the government does define a reasonable deductible, IBC suggests dividing it by the number of condo units in a building. For example, a $50,000 deductible for a building could be $500 per unit per owner if there are 100 units. “So, we consider that would be reasonable, especially if you consider with homeowners, who may have a higher deductible in some cases,” Babinsky said. “If they go ahead with that, condominiums would be the only home insurance product that would have such a definition as opposed to commercial, home, any other type of home insurance coverage. We don’t see an urgent need to define that at this point.”

Other positions taken by IBC:

• The industry standard of $1 million in liability insurance is sufficient. “If we go to $2 million, you may find yourself to be overinsured, so you’re paying for coverage you may not need.”
• Anything that is currently covered through an endorsement should remain covered through an endorsement. “We should not take something that right now is covered through an endorsement and include it in the usual risks,” Babinsky said. For example, perils like fire, theft, explosion and lightning should be covered, but anything that is covered through separate endorsement like sewer back-up and surface water should remain insurable through an endorsement. In some cases, a particular building may not have access to special coverage due to the high risk.
• If condo corporations have a claim where need to use a self-insurance fund (to cover minor damages below the deductible), they should have six months to collect the fund. If they have a claim where they have to use the fund, they should have another six months to rebuild the fund.
• For the yet-to-be reviewed more general condo legislation, condo corporations should commission a reserve fund study to see what is needed in short-, medium- and long-term maintenance to keep the building in a good state of repair. “What we’re seeing now is most reserve funds don’t have enough funds to do proper preventive maintenance and that’s where, we feel, a lot of the claims come from because of these damages.”

“We’re happy with most of these changes,” Babinsky said. “We feel that it better defines the responsibilities of each stakeholder, including [condo corporations], insurers, etc. Also, this is in addition to all the initiatives the industry has undertaken in Quebec to simplify the claims settlement process. With the new legislation, in addition to what the industry has done to simplify that process, we feel we’re on the right track.”