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UPDATE: B.C. strata insurance market ‘unhealthy:’ study

Rates up 40% on average, more than doubling in 6% of buildings
Frank Chong | BCSFA, screenshot

Strata corporation insurance rates have jumped about 40% across B.C. since last year, with deductibles sometimes leaping to triple-digit increases, the B.C. Financial Services Authority (BCFSA) said June 16.

“The current state of the strata insurance market is unhealthy,” said authority vice-president and deputy superintendent for regulation Frank Chong.

Minister of Finance Carole James said rising condo and apartment building costs are serious issues for thousands of British Columbians.

“This is especially true with many people facing additional financial pressure related to the COVID-19 pandemic,” she said. “We knew this was a complex issue, and now we have a clearer picture of the different local, national and global factors affecting cost and availability within the insurance market.”

Among key report findings, based on a survey of 6,000 strata and townhouse properties, are:

• an average increase of 40% year-over-year to strata insurance premiums province-wide;

• a 50% increase in Metro Vancouver;

• 54% of strata properties experienced a premium increase of less than 30% compared to premiums the previous year;

• 31% of strata properties saw increases in the 30-50 % range;

• 9% faced year-over-year increases of 50 -100%; and

• 6% saw increases in excess of 100% compared to the previous year.

“Price pressures will continue,” the authority said in the report to James. “Buildings considered to be higher risk are expected to face the most significant increases as well as the possibility of not being able to obtain full, or in rare cases any, insurance coverage."

The data is in an interim report done at the direction of the provincial government. Further findings will be released in the fall after continued stakeholder consultations, Chong said.

The authority regulates the province’s insurance industry, among other things.

CEO Blair Morrison said the market is failing to meet goals of sustainability, affordability and availability.

“Despite large increases already being felt, the situation has not yet stabilized, meaning many stratas, particularly those in buildings considered to be higher risk by insurers, can expect to face further pricing pressures as well as the risk of not being able to obtain full strata property insurance coverage,” Morrison said.

The industry generates about $300 million in premiums, covering more than $100 billion of insured property value. Coverage is mandatory under B.C.’s Strata Property Act, the authority told James.

Insurance under the act, which must provide full replacement value of the common strata property and assets, does not cover individual unit insurance, which owners need to ensure under individual policies.

The authority said earthquake coverage is not required under the act, but it is often included in strata property coverage.

“Strata corporations that choose not to purchase earthquake coverage are still covered for fire damage following an earthquake,” the authority told James. “An estimated 1.5 million residents live in strata properties in BC and properties can range from under $1 million to over $200 million in insured value.”

The investigation found evidence showing the industry has been incurring losses over the past three years from mostly minor claims, particularly from water damage, due to poor building maintenance.

“The data suggests that strata insurance has also been used to fill in the gaps left by other forms of protection such as home warranties for new buildings and maintenance programs for older buildings,” the authority said.

Further complicating things is the exposure to risk insurers have to earthquake damages in B.C. which has prompted many to reduce the amount of insurance they offer, the study found.

“With this reduction in capacity comes upward price pressures,” the authority said.

“It’s clear there is no quick fix for this problem,” James said. “It’s important to recognize that the dynamics driving these increases are playing out in the private insurance industry – government does not set insurance rates or regulate pricing.”

She said the government is reviewing the report and will be bringing in legislation this summer as a first step to help tackle this problem, while the authority continues its engagement with the sector.

While legislation details won’t be released before being introduced in the Legislature, Liberal Party Opposition Leader Andrew Wilkinson has called on James to take action.

“Skyrocketing strata insurance costs represent one more unexpected hit to the wallets of British Columbians, with a growing number truly at risk of losing their homes. Action by your government is needed now,” Wilkinson said in a June 16 letter to James.

Wilkinson suggested the following actions be taken:

• implementation of a temporary tax holiday on the 4.4% Insurance Premium Tax applicable on strata property to leave money in the pockets of strata owners;

• Extension on a temporary basis the Property Tax Deferment Program to enable strata owners facing extraordinary additional expenses to defer a portion of their property taxes;

• changes to Strata Property Act and regulations that ensure annual contributions are made to a strata corporation’s consolidated revenue fund at levels acceptable considering a building’s age, claims history and other unique circumstances; 

• require strata corporations to have a depreciation report detailing necessary maintenance every year; 

• require a strata corporation to inform owners and tenants of any material change in insurance coverage, including an increase in any deductible, as soon as feasible;

• develop a mandatory education and training program for strata council members, with particular emphasis on risk mitigation;

• review the B.C. Building Code and implement new requirements focused on the prevention and severity of water damage events, and;

• require the B.C. Financial Services Authority to make public the data and information it is gathering from insurance companies to better understand the current climate of rapidly rising strata insurance. 

Condominium Home Owners' Association of B.C. CEO Tony Gioventu in March warned that uninsured condo owners could find themselves bankrupt and homeless if they didn’t maintain suites and personal insurance as strata insurance costs skyrocket.

Birds Nest Properties handles condo and townhouse rentals in Vancouver, Burnaby and Richmond. Director Alvin Cheung said the situation is putting pressures on both strata corporations and individual owners.

Cheung said some buildings have seen deductibles rise from $250,000 to $750,000, situations that have led to special levies for unit owners.

“What if all the owners can’t pay the special levy? What happens then?” he asked.

That could lead to cases of buildings not triggering their insurance leaving owners to pay for repairs or upkeep just not being done.

“It would be a neglected building,” he said.

And that could cause future insurance coverage problems, he agreed.

As well, Cheung said, landlords have seen their landlord insurance premiums leap, in some cases from $500 to $4,000 a year.

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