Insurance costs for condo corporations have been rising across Canada. Some are facing sharp increases in premiums and deductibles; others are unable to renew their insurance. For many, this challenge has reached a crisis stage. Here, Pete Karageorgos, director of consumer and industry relations from the Insurance Bureau of Canada, offers some answers.
What is causing insurance premiums to spike in the condo industry?
Not all condo corporations are facing extreme premium increases. Insurance is about risk and premiums are commensurate with the level of risk a property faces. A good deal of the challenge in the condo market is driven by claims. Unfortunately, some condo corporations have been using their insurance as a maintenance policy. Insurance is supposed to be used for the unexpected. It becomes expensive if it’s being used for the expected. Many of the condos seeing large increases have a significant history of claims. IBC is aware of one condo corporation that made 11 water-related claims in just six years.
Much of the problem is also driven by the cyclical nature of the commercial insurance market, which experiences periods of expansion and contraction. Compounding the problem is insurers have more discipline in commercial underwriting and are reviewing each risk very carefully. We’ve also seen years of severe weather losses, low return on investments, and increased claims activity. When combined, these factors have forced insurers to review their rates.
Condo corporations with reasonable claims histories may still experience an increase as a result of market conditions, but we are hearing from some brokers and insurers that these increases are often closer to the 20 to 30 per cent range.
Why are some condos seeing higher increases than others?
Recent increases in condo insurance premiums are based on a number of factors, including condominium values increasing faster than inflation, construction materials, geographical location, claims history, repair and rebuild costs, maintenance and repair schedules, and risk management strategies.
Tough market conditions can also result in premium increases on properties that may not have significant claims or maintenance issues. Many factors outside of claims history influence premiums like geographical location, vacancy rate, number of rental units, replacement cost, age of a property, maintenance schedules, risk management strategies and mitigation programs.
How can a condo avoid risk and mitigate impacts?
One of the best strategies a condo corporation should utilize is a comprehensive preventive risk management program. Many claims are preventable and there are steps unit owners and condo corporations can take to prevent loss or damage from occurring. Ensuring that preventive maintenance and repairs are part of this overall strategy and following the direction of the reserve fund studies (depreciation reports in B.C.) will help improve the situation over the long term. Any steps a corporation can take to improve their risk profile and avoid claims will have a positive impact on future premiums. Even technology, like water detection devices coupled with automatic water shutoffs could be beneficial in mitigating the impact of loss or damage. Condo corporations should also review options and coverages on a regular basis with their insurance representative and understand what additional steps can be taken to ensure long-term affordability. Unit owners need to mitigate losses in their units as damage can easily spread and impact others, particularly in high-rise buildings.
Pete Karageorgos is the director of consumer and industry relations at the Insurance Bureau of Canada.
This Q&A was featured in the March issue of CondoBusiness magazine