How and Why Strata Insurance Premiums Are Rising in 2020 and What You Can Do About It
BOTH PREMIUMS AND DEDUCTIBLES ARE RISING
With up to an estimated 10,000 strata corporations across the province to be impacted by the insurance rate increases, all strata home owners in BC must brace themselves. There has been or will likely be a premium and/or deductible increase on the renewal of your building’s insurance policies. While some people may be able to swallow a tough pill and budget for a premium increase, it’s the deductible that’s throwing many for a loop. CBC reports that one resident found that his building’s deductible went up by 400 per cent, from $30,000 to $150,000. Imagine having to pay a deductible of $150K in order to cover the cost of water damage (etc.)? You can buy a family home in the BC interior for that much. Another building in BC had its deductible increased to $750,000 – nearly the cost of a mansion in the Southern Okanagan. Insuring you have adequate insurance coverage for strata deductibles has never been more important!
WHY SUCH A LARGE INCREASE?
Insurance companies are no different than any financial institution when it comes to preparing for risk. They are expected to maintain financial reserves necessary to meet the demands of future claims. In fact, they are legally bound to the Office of the Superintendent of Financial Institutions to disclose financial information and prove that they are meeting its requirements. When future claims are expected to rise, so does their requirement of financial reserves. Look no further than climate change and the increase in catastrophic weather events as a precursor to homeowner insurance claims as a reason. In recent years, the number of claims has absolutely increased and insurance companies are scrambling to keep up.
Insurance rates are also at the mercy of market forces such as Bank of Canada interest rates. For example, a lower or stagnate prime rate (as it has been in 2019) can negatively impact an insurance company’s risk profile as an equity investment if analysts believe the insurer will have difficulty meeting future financial obligations.
Other factors fueling the strata insurance rate increases in BC include the following:
- Increase in the number of condo/strata developments
- The cost of rebuilding has increased
- Old construction buildings beginning to show their wear and tear, making them more vulnerable to system failures
- The local market is affected by increasing global losses from catastrophic events such as forest fires, floods, and earthquakes
HOMEOWNER OR STRATA CORPORATION PROBLEM?
Homeowners under a strata umbrella may feel they won’t share the burden of these insurance rate increases. As a strata unit owner, you insure your contents in addition to upgrades made to the unit under a “condo” homeowners’ policy. However, these policies also include other critical coverages. Liability insurance covers damages from losses that originate in your unit and extend to other units or a common area. Your condo insurance policy can also cover a portion of your strata corporation’s deductible in the event of a significant claim. Therefore, if their deductible increases, you will require greater coverage to account for your proportionate share.
In the event that a claim is lower than the strata corporation’s deductible, it will not be covered by their policy. As per your strata building’s bylaws, they are likely financially responsible for damages to common property while you are responsible for covering damages to your unit. As it is now, many of the repair and replacement costs that were traditionally covered by the strata corporation’s insurance policy will now be passed on to unit owners.
In addition, if your strata corporation is faced with a large increase in insurance rates, the updated cost will be reflected in your annual strata fees. But it doesn’t stop there.
According to BC’s Strata Property Act strata corporations may sue an owner to recover the cost of repair or the deductible portion of a claim if the owner was responsible for the loss. Some strata corporations prefer to avoid the cost of going to court, and are therefore making owners solely liable for losses originating from their units. Given the increased costs of renovations and the massive rise of deductibles in 2020, something like a kitchen fire can leave you in financial ruin unless you have adequate protection.
MORE COMPREHENSIVE CONDO INSURANCE PROVIDES THE PROTECTION YOU NEED
There has never been a more important time to review your condominium insurance coverage in BC. If you’re unsure about what liability falls on you as the owner of a unit, request a copy of your strata corporation’s bylaws along with details regarding the building’s insurance policies and warranties and bring the documents to one of our independent insurance brokers. Armed with a copy of your strata building’s insurance policy and bylaws, we can help you find a condo policy that protects YOU in the event of a claim.
Have more questions? We are here to help. We care about providing British Columbians with the information that they need to protect their homes.