Two ways to address rising condo insurance premiums

One broker association is calling for consultation among all key stakeholders to discuss owner liability in condo corporations, with a focus on proposed achievable legislative action.

As condominium (strata) insurance premiums and deductibles continue to rise across the country, the Insurance Brokers Association of B.C. (IBABC) is recommending two key reforms to the Strata Property Act:

• A $50,000 cap on loss assessments (which may not apply in cases involving negligence)
• The addition of a standard definition of a strata unit.

“IBABC recognizes these changes won’t directly address the rising strata-building premiums and deductibles, but they are foundational pieces to that issue and the long-term stability of the B.C. strata insurance market,” the brokers association said in a press release Friday.

Condo corporations across Canada in many cases are receiving notice of premium and/or deductible increase on renewal of their existing insurance policies. In B.C., the broker association reports renewal premium increases between 50% and 400%. Deductible increases are up from $25,00 per claim to $250,000, $500,000 and, in one case, $750,000 for water-related losses.

“There are also cases of strata buildings without insurance coverage for water losses,” IBABC reported, noting that stratas in the province are required to have insurance for full replacement cost. Some strata corporations and unit owners have been left vulnerable as they scramble to find adequate coverage.

IBABC says that by introducing an upper loss assessment cap (for deductible assessment and non-insured loss assessment), it assists strata lot owners in accessing adequate and affordable insurance to protect themselves from potentially unmanageable financial loss.

“Higher premiums and higher deductibles increase the burden on the unit owners,” said IBABC president Troy Wotherspoon. “They are likely looking at increased strata fees to cover the big jump in strata building insurance premiums. Plus, subject to bylaws or strata council decisions, stratas can charge back the deductible, or the full cost of a repair if it is less than the deductible, to an owner who is deemed responsible for damages. That’s now potentially hundreds of thousands of dollars, and it’s nearly impossible for a unit owner to find insurance coverage for a deductible that high.”

Deductibles and coverage is further complicated by a lack of a “standard unit definition” in B.C.’s Strata Property Act, the broker association said, arguing that a “bare bones” standard unit definition should also be introduced as part of the act. This definition would encompass the structural components of the unit, such as walls, ceilings, drywall, sub-floor, basic electrical, plumbing and some HVAC components, including the requirement to meet applicable fire and building codes. It would not include most finished items, such as floor finishing, carpets, countertops, plumbing fixtures, appliances, and any upgrades beyond the bare bones definition, which would then be clearly the unit owner’s responsibility to maintain and insure.

“Having a legislated standard unit definition would greatly clarify the responsibilities of strata building insurers via their offered insurance policies versus the responsibilities of strata unit owners and their insurance responsibilities,” IBABC said. “This clarity would assist with proper insurance-product pricing and start the journey back to stability for the strata insurance market in B.C.”

These two recommendations could protect millions of strata unit owners from further risk of losing their homes and likely help mitigate future insurance market cycles, IBABC said.

Over recent years, strata corporations have benefitted from a highly competitive insurance market with unsustainably low premiums. But rates tend to follow market cycles and as the insurance market hardens, strata corporations are also experiencing and increasing frequency of claims with increasing costs of repairs. This is exacerbating upward pressure on rates and availability of coverage.

Metro Vancouver has approximately 2.7 million residents, with about half residing in strata-titled properties. Within B.C.’s strata property classification, there are now more than 30,000 strata corporations. “These numbers reflect the significance of the current strata deductible increases and the challenges posed to millions of strata unit owners.”