Condo insurance premiums in Canada appear to be stabilizing following years of premium and deductible increases.
“You should see some flattening, maybe some tapering, in some insurance rates in this sector in the near future for most good risks and those with a better claims history,” Peter Kennedy, Aon senior vice president and national director, real estate practice for Canada, told Canadian Underwriter.
Condo/strata risks not perceived as good can, but not necessarily, include: older buildings; those with poor maintenance; those situated in certain locations such as flood zones; and, buildings of inferior construction.
“We project, all things being equal and no major catastrophic events … that the market is pretty much becoming stabilized in terms of rates,” Kennedy said. “But that’s not to say it’s going to be a lot better, it’s just not going to get worse.”
Kennedy noted the difference between premiums and rates. While a rate can be flat over last year, premiums can still go up as replacement costs of the asset rise (premium is a function of rate times replacement costs) due to higher construction costs.
For nearly three years, the Canadian condo insurance market has been enduring “some really tough challenges” in terms of premium and deductible increases, Kennedy said. “That was just a result of prolonged depressed rates, low deductibles and claims … that eventually just caught up quite frankly and to the point where insurance companies were consistently losing money all across their whole book in this particular sector.”
But condo insurance is just one subset of the entire real estate market, which includes other assets such as office and industrial buildings, shopping malls and residential apartment buildings.
“It’s all been subjected to the general hardening of the whole insurance marketplace over the last, say, three years or so,” Kennedy said. “It’s subject to both its own peculiar situation, as well as the broader insurance market changes that we’ve seen over the last three years.”
In November 2021, rate comparison site LowestRates.ca predicted rising condo insurance premiums would continue at least through the first two quarters of 2022. The rate aggregator’s Home Insurance Price Index for the second quarter of 2021 noted condo rates were skyrocketing in British Columbia and Alberta in particular, with quarter-over-quarter increases of 22% and 10%, respectively.
Canadian Underwriter has heard rate increases were much higher than that in many cases. “The premiums collected just weren’t sufficient to cover the losses that insurance companies were paying out, water damage being one of the bigger ones,” Kennedy explained. “If you have a water damage loss in a high-rise condo building, it generally goes down several floors. So, it tends to be much bigger than just confined to one unit. It can affect the whole building structure as well.”
So, higher rates and deductibles are here to say, Kennedy said.
“[That’s] not to say they’ll stay where they are, but they aren’t going back to where they were several years ago,” he said. “It’s just not sustainable. I think everyone’s learned that lesson, too.
“Where it goes from here is a little bit of an unknown,” he added. “But certainly, the horrific premium rate and deductible changes that you’ve seen in the last couple of years are not going to happen in 2022, all things being equal.”