Canadians today aren’t just worried about climate change – they’re experiencing its negative effects first-hand. With dramatic flooding in the east and wildfires in the west, an increase in catastrophic weather events has left everyone worried about the future.
For multi-residential property owners, these worries are carrying over into concerns about their insurance policies, as extreme weather events are directly impacting the price of coverage. Even in a relatively mild year—a year not involving fires like those at Fort McMurray in 2016 or floods like those in Toronto and Calgary in 2013—the cost of recovering from a CAT event can be astronomical.
Throughout 2019, building owners and operators can expect to see carriers looking for rate increases. In fact, loss affected properties and coastal properties could experience spikes of greater than 25 per cent. Making your portfolio look good to underwriters is by far the best way to prevent a substantial rate hike. Here are three areas to consider:
1. Focus on tighter risk management
Properties that maintain or improve their standing will be best positioned to keep rising costs at bay. To achieve this, building owners and operators will have to focus on tighter risk management, including disaster preparedness ahead of the next CAT event and engaging brokers to do what they do best: negotiate on their clients’ behalf.
The largest property policy increases will be felt by residential real estate owners. This increase will be driven largely by traditional property loss leaders, including fire and water damage and increased property valuations. In the first quarter of 2018 alone, building construction costs were up 1.8 per cent. Considering this rate of inflation, a property valued at $1M just a decade ago is very likely significantly underinsured today. To best position residential real estate, owners should direct their attention towards preventative maintenance, risk management and emergency response – and have a water mitigation plan.
2. Be wary of water
Water damage maintains its standing as a major loss leader. One of the largest drivers of commercial property losses, water damage claims will continue to wreak havoc across the country in 2019. As a result of an aging infrastructure and defects in new construction, as well as warmer temperatures due to climate change, significant claims are occurring across commercial and residential high-rises.
In fact, a University of Waterloo study reported that insurance claims from floods and other weather events have quadrupled over the last ten years. Typically, what begins as a small event in one space becomes a massive building-wide claim. For example, a recent claim involving a residential high-rise condominium occurred when a ½-inch water line broke in the penthouse unit and flowed water for 20 minutes. Due to the cascading effect, the result was a major six-figure claim, with months of headache for the affected condo owners. Underwriters are now taking note and will put additional deductibles on property policy renewals to protect themselves.
3. Be cautious when it comes to green installations
Many property owners and operators are eager to embrace sustainability initiatives; that is, until they create additional risk. When this happens, property owners and operators will face limited insurance options. For example, photovoltaic (solar) panels on the roof introduce the chance for electric shock, meaning fire fighters won’t spray water on them to extinguish a building fire. Renewables installed on rooftops in coastal areas could blow off in a storm, potentially causing significant damage to neighbouring structures. Similarly, wooden structures are generally more difficult to insure due to their increased risk of fire. Consider discussing renewable options with your broker/carrier before installing these resources in the first place.
2019 and beyond
Last year was unusual for CAT events, with the spring beating out the summer for the most CAT events and Ontario topping Alberta for insured losses. As a whole, 2018 ended with 12 catastrophic events and carriers and insurers alike are breathing a sigh of relief. At this stage, portfolio managers should employ best practices to minimize common loss leaders – fire, water damage and more – that threaten to further increase property policies into 2019 and beyond.
Sarah Thompson is associate vice president for Hub International’s real estate practice in the Greater Vancouver region. She holds an Honours Bachelor of Business Administration (BBA) degree in Insurance and Risk Management, and is a Fellow Chartered Insurance Professional (FCIP) and Canadian Risk Manager (CRM).