A large increase in deductibles on condo corporations’ insurance is starting to put pressure on individual condo owners’ premiums, a new report from LowestRates.ca shows.
“When a deductible goes up – say from $20,000 a year to $100,000, or $200,000 – and there is a claim, the condo building or strata typically does not have enough collected from the residents’ [condo fees] to cover that deductible,” Justin Thouin, co-founder and CEO of LowestRates.ca, explained in an interview.
Thouin was referring to deductibles on insurance for condo and strata corporations to cover damage to common elements and the condo building themselves, as opposed to individual unit owners’ home insurance.
When the common area of a condo building is damaged because of a problem originating from a particular unit, the condo corporation can go after that unit owner to reimburse the corporation for its deductible.
The British Columbia government cites, for example, a scenario in which a dishwasher overflows in a strata unit. Say that dishwasher mishap causes water damage to common property and other strata lots. In a case like that, the strata corporation can sue the individual strata owner for the cost of the strata corporation’s insurance deductible.
When a strata or condo unit owner is responsible for reimbursing their condo corporation for the deductible on their condo corporation’s property claim, the unit owner might make a claim on their own condo insurance.
“This is largely being driven by the costs of insuring the condo buildings themselves trickling down to individuals’ condo insurance, as opposed to what is going on in the individual condo units themselves,” Thouin told Canadian Underwriter.
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In its latest Home Insurance Price Index, LowestRates.ca found the year-over-year increase for Ontario condo unit owners’ premiums was 8%.
“I think Ontario is perhaps a year behind what was happening in Alberta and B.C., but moving in the same direction in terms of condo building insurance prices increasing and those increases trickling down to personal condo insurance,” said Thouin.
LowestRates.ca uses data generated from its own quoting engine to create an index, with the baseline at 100 in 2019 Q2. If an index is at 101, that means rates increased by 1%.
The 2019 Q4 index for condo was 98 in Ontario, 97 in Alberta, and 99 in B.C. One year later, the 2020 Q4 index in condo was 106 in Ontario, and 117 in both Alberta and B.C.
The increase in deductibles for condo corporations’ property insurance reflects the hard market in that sector.
For commercial property insurers, loss ratios in B.C. and Alberta have been “extremely poor” in their condo corporation book of business, suggested Thouin.
Insurers have reacted by either exiting the condo corporation market or increasing premiums and/or deductibles.
For years, insurers had been competing on price when writing risks for commercial realty, said Scott Treasure, CEO of Edmonton-based Treasures Insurance and Risk Management Inc., in an earlier interview with Canadian Underwriter.
“It is susceptible to all of the little things that have been challenging property for a while,” Treasure said at the time. “Water damage in those spaces can be a very big deal. People are stacked up on top of each other so the problems literally cascade.”