Full disclosure: I currently work for a national insurance broker, and one that has a significant portfolio of clients in the strata building, property management, and strata unit owner spaces. All of the opinions expressed below are my own and should not be considered a reflection of my firm’s business practices or policies; they are (hopefully well) informed by my experience in the insurance field.
I got a call a couple of weeks back from a friend who also works in the insurance industry. He had been called on by his strata (that’s a condominium in Rest of Canada speak) council, because he works in the insurance industry, and they had a problem. First, their deductible had increased from low five-figures to six-figures on renewal. And their broker was unable to get them more than 12% coverage on the building – meaning they were short 88%. Apparently it had been all the way up at 46% coverage, but one of the underwriters pulled out.
That was really odd to me. We talked a lot about the British Columbia Strata Property Act, something I’ve reviewed from time to time as an adjuster, but not in depth – just enough to get the information I needed; we agreed that this was contrary to what the Act allows. We talked a lot about the hard market. We talked a lot about what the heck his strata corporation was going to do.
Then I got a call from a friend of mine, our strata council president. I had talked to her six months ago or so, and warned her to keep an eye on the building deductible at renewal, knowing it might jump up. She asked if I could review the policy renewal documents that they’ve sent to us – sure, no problem. I got the declaration page, and the policy renewal invoice, and a letter explaining the maximum payment on the policy, which is drastically lower than the amount of the insurable value of the property. Essentially, we were not covered for a significant amount of the value of the strata buildings. It seems the broker for my strata only got us covered to about 68% of the value of the strata property. This came with a commensurate 70% increase in premiums, and our deductible went from four figures to high five figures.
I then received an e-mail from another friend, also in the insurance business. She almost casually asked how much (little) my strata was renewed for, as hers was renewed for only 60% of the insurable value. The almost off-handed way this was brought up was staggering to me. Discussions about property values and what the property was shown at on the most recent provincial assessment are very casual dinner conversation here in BC – something I’m still getting used to – so I understand that it’s a bit of a “ho-hum” idea. Make no mistake, both my friends (and my strata council president) were taking this very seriously – but seriously in a very BC-sort of way. This was all within the span of 3 weeks.
Now factor in the fact that many of the strata owner insurance policies carry difference in deductible clauses, but are limited to much lower amounts than the strata carries as a deductible. These clauses state that if the insured is found to be liable for the loss (a water escape, say) that damages strata property, the strata owner’s policy will pay the difference between their deductible and the strata deductible. In most cases, a strata owners’ deductible is about $1,000; for many stratas, the deductible was $10,000, or $25,000, or for really large towers $50,000. Most of the unit owner policies carried a limit on this coverage – most insurers don’t want to give coverage for difference in deductible for more than about $50,000. The problem is that on renewal, many of the policies for strata buildings are going up to $75,000 or $100,000 (I’ve heard anecdotal stories of double or triple that) – often jumping up from $5,000 or $10,000. This is going to leave a lot of homeowners in significant peril if a major loss occurs in their unit and they are considered liable. If you live in a strata unit, don’t leave any pot unwatched, and don’t smoke on the balcony.
Clearly this is happening everywhere in the province, and is getting to be a real problem in BC, but especially in the densely packed and strata-heavy markets of Vancouver, Victoria, and parts of the interior of BC like Kelowna. Now our strata has to undertake additional measures for fire prevention – like paring trees back to reduce the risk of fire spreading from one building to another – because we don’t have coverage for the whole strata if it all goes up in flames.
Bear in mind, this is no longer theoretical for me. This is my home that I’m now talking about. This is the place where I live, the roof over my head, the place where my future bride, my dog and I go when there’s nothing more to do. This is where I’ve been locked down for three months. This is where I have a significant financial investment.
This is a real problem – one that is looking for a solution that no one seems to be coming up with. I don’t have the solution, I don’t think, but there needs to be a way to balance the issues of coverage for strata property, coverage for the exposure of the strata unit owners, and profitability for insurers. However, before I started to think of a solution, I started to wonder how the heck we got into this position in the first place.
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