February 12, 2020 by Jason Contant
Insurance should be mandatory for all condo unit owners in the condo corporation, an executive with the Insurance Brokers Association of B.C. (IBABC) told Canadian Underwriter Monday.
“Strata/condo building managing councils should encourage their member unit owners to vote in favour of their bylaw changes to make unit owners insurance mandatory for all owners in the condo corporation,” said Chuck Byrne, IBABC executive director and chief operating officer.
Byrne was responding to a question from Canadian Underwriter about what he thinks would help address rising strata premiums and deductibles.
The industry should start a campaign to entice strata/condo buildings and condo unit owners to adopt technology, such as water detection sensors, flow meters and shut-off valves) to mitigate losses, Byrne added. Insurers need to publish their loss mitigation requirements and pass this knowledge to brokers and, by extension, consumers. Eventually, premium and term reductions to strata building owners must be offered for this mitigation effort.
On its own, this is a huge undertaking that requires changing insurers’ current practice and current underwriter lack of freedom to truly loss control a risk or provide discounts and loss preferred terms, Byrne acknowledged.
For strata buildings in B.C., there needs to be a significantly heightened discipline around depreciation reports and future capital repairs/replacement and related planning, he added.
“With heightened insurance-risk awareness amongst strata owners, etc., strata/condo building owners and unit owners need to eliminate the crutch of using the insurance policy for maintenance issues for the building and residence unit.”
Last week, IBABC called for consultation among all key stakeholders to discuss owner liability in condo corporations, with a focus on proposed legislative action. IBABC recommend two key reforms to the Strata Property Act:
Byrne called these two changes the place to start, but only the “tip of the iceberg.”
What does a loss assessment involve in the strata space? Condo owners can buy an extension of coverage to their unit owners policy to insure against assessments levied to them by the condo building council to, for example, fund a deductible emanating from a claim for damage to the building or insured by the collectively-owned building insurance policy, Byrne explained. For example, think about a $500,000 water loss subject to a $100,000 deductible. If the building had 10 residence units, each could be assessed $10,000 to cover the deductible. The loss assessment coverage of their own unit owner policy could then be called upon to pay the $10,000 assessment.
Currently, there is no cap in B.C., so a unit owner ‘deemed’ responsible by the condo corporation council for the claim in some cases may be assessed the entire deductible. Using the above example, a unit owner (possibly through no negligence) may be assessed the full $100,000 deductible.
However, most policies offered by most insurers with an extension to cover loss assessment on a unit owners policy do not offer that much coverage, Byrne said, adding that $50,000 is currently considered a realistically available limit for deductible/loss assessment coverage.
As for a definition of a strata unit, IBABC recommends introducing a “bare bones” standard unit definition in the provincial Strata Property Act. This would encompass essential structural components of the unit, such as walls, ceilings, drywall, sub-floor, basic electrical, plumbing and some HVAC components, including the requirement to meet the applicable fire and building codes. It would not include most finished items, such as floor finishing, carpets, countertops, plumbing fixtures, appliances, and any upgrades beyond the bare bones definition, which would then be clearly the unit owner’s responsibility to maintain and insure.
In many cases, condo corporations across Canada are receiving notice or premium and/or deductible increase on renewal of their existing insurance policies. In B.C., the broker association reports renewal premium increases between 50% and 400%. Deductible increases are up from $25,000 per claim to $250,000, $500,000 and, in one case, $750,000 for water-related losses.