As many of you are aware having watched the news, renewed your insurance, attended our seminar or reviewed insurance quotes, we are in uncharted territory with the current insurance market.
Over the past year we have witnessed numerous challenges within the insurance industry on the placement of insurance for strata corporations.
There are currently a limited number of insurers who will provide insurance for Strata Corporations in BC, and more recently, several insurers have either reduced or withdrawn their capacity completely. As the number of insurers decrease, and the amount of capacity offered by the remaining insurers tightens, insurers are becoming very firm on their terms and minimum requirements which is leading to increased premiums and deductibles.
Market Insight
In short, the current insurance market insight is:
- Weather related catastrophic events continue to become more frequent and severe (fires / floods / hurricanes).
- Average losses for strata corporations have increased to over $50,000.
- There is more demand than supply – fewer insurers are insuring strata corporations due to overall claims experience.
- Replacement cost valuations are increasing on average by 7-10% which in turn means most clients need to purchase 7-10% more insurance.
- 30-40% of the strata corporations in BC make a claim every year, and repair bills have increased on average by 10-15%.
- 54% of losses claimed are over $100,000.
- Insurers are imposing higher deductibles to help minimize the frequency of claims and lower overall claims costs.
A number of years ago Wynford went out to the insurance market and obtained competitive quotes from the top 3 insurance brokers in the industry – BFL Canada, Hub, and CMW; this was done for the entire Wynford portfolio of properties. In today’s market, we are unable to do so as obtaining multiple quotes is very difficult if not impossible. The insurance brokers share from the same pool of insurance providers (underwriters). Once one broker approaches an underwriter, the underwriters will not provide terms to other brokers – commonly referred to as “the markets are blocked”. Due to the stressed market, the insurers are much quicker to decline to quote if the strata corporation has any perceived risk factors or a high-risk profile. In addition, a number of underwriters previously offering coverage have pulled out of the BC Strata insurance market which is compounding the problem.
High-Risk Profile
The insurance industry has deemed the following as High-Risk Profile:
- Wood Frame buildings – especially non sprinklered.
- Buildings in high hazard zones – earthquake modeling identifies higher areas of concern for earthquakes in Richmond, Delta, New Westminster and parts of Vancouver.
- Older buildings with no updates to their building infrastructure (roofs, piping, heating and electrical systems).
- Properties with high values – as building values increase with the annual appraisals there is higher chance of the market not having adequate capacity.
- Properties with poor loss record – the 5-year loss history for your building is reviewed very closely and frequency and or severity of past insurance claims could have a large impact on the renewal results.
Despite all efforts of our strata managers and management team, the proposals being received from the insurance brokers, if we are lucky, are being received last minute. In most some cases, within 5 days before the renewal is due, thus leaving very little time for Councils to review and approve. As strata insurance is a requirement under the Strata Property Act it is difficult for Councils to review and provide approval to the strata managers to bind the insurance by the renewal date.
Budgeting
When looking at your budget for the next fiscal year we are seeing the average increase of 50% – 300%. Strata corporations that have a high replacement value (over $40 million) and a poor claims history will see much higher increases in rates and deductibles based on their individual loss history.
In the past, the average water deductible was $15,000 or $25,000 – now those water deductibles are increasing to $50,000, $100,000 and as high as $250,000. The most readily available tool to control exposure to risk is the application of higher deductibles, especially on those types of properties with a history of poor claims experience. When large deductibles form part of the policy, it is important that a risk management plan be put in place by the corporation to meet its financial obligations following a large loss. Part of this risk management plan includes having adequate chargeback bylaws.
All owners should be purchasing their own personal home owner’s insurance! One of the coverage items included in a condominium unit owner’s policy is deductible assessment coverage, which covers a responsible unit owner for the deductible amount when the Strata Corporation assess it back following a loss. Most strata unit owner insurance policies include some form of deductible assessment coverage; but each owner should check with their personal insurance representative to ensure that they have an appropriate limit of coverage for this potential exposure. Care should be taken to ensure that your strata corporation bylaws properly allow the deductible to be charged back to responsible unit owners following a claim.
In the News
All strata corporations in and around the lower mainland will be faced with significant increases in their insurance premiums along with higher deductibles. You are not alone. Nearly every major news station and paper has published a story related to the strata insurance increases. Tony Gioventu from the Condominium Home Owners Association (CHOA) has written several articles on the rising insurance concerns for strata corporations.
These insurance increases are a new reality for strata corporations in BC and stratas will need to take appropriate steps to ensure premiums and deductibles can be paid. This may result in significant increases in the operating budgets which will require strata fees to increase.
We are not insurance professionals but felt it important to offer the above update to ensure our clients are informed. As managing agents on behalf of our clients we feel it our duty to bring this to your attention. We must also emphasize that Wynford as a brokerage will continue to try our best to obtain quotes and push the insurance brokers to provide the best prices and deductibles.