What brokers are looking at to help condo corporations reduce deductibles

Brokers working in the condo insurance class of business are looking at creative ways to help their condo corporation clients shoulder the burden of much higher deductibles — including preliminary discussions around the option of “buy-down” deductibles.

“As a broker, we’re always looking for other alternatives to see what we can do to alleviate the difficulty we are seeing in today’s market,” said Jeff Rodin, president and CEO of Condominium Insurance Solutions (a Navacord brokerage). Rodin was speaking as a panellist recently in Canadian Underwriter’s webinar, Build up your condo business: How to succeed in today’s condo insurance market.

“We’ve seen, and we have on our books, condos that have a $500,00 deductible, and many at $250,000, and that’s just an uncomfortable level for a condo corp.,” Rodin said during the webinar. “So, what we are trying to do is garner the interest of an insurer that will take a premium to buy that deductible down.

“It wouldn’t be the same insurer that has set the deductible, but another insurer that would look to reduce that deductible for a premium, and then in the event of a claim, pay that difference. It’s very preliminary. It’s just in the works.”

Rodin noted that condo corporations must be compliant with strata laws that say the corporation must insure the building to 100% of its value. But as the webinar audience heard from panellists such as Lindsey Bellinger, assistant vice president of commercial lines underwriting at Aviva Canada, and John Slattery, executive general adjuster at Sedgwick, claims costs in the condo space are escalating for multiple reasons, be it water damage on the property, fires, liability claims, or D&O claims.

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Premiums costs and deductibles inevitably increase along with the claims costs, as the panellists noted. And when profitability is threatened. Some insurers are reportedly exiting from this class of business.

Although official numbers are hard to come by, anecdotally condo insurance rates have increased on average by 15% to 20% nationally. In B.C., where the situation is acute, government and industry sources have reported condo premium increases in the range of 35% to 40%.

The Insurance Brokers Association of B.C. reported earlier this year that “deductibles to cover claims have…increased substantially, from $25,000 per claim to as high as $250,000 and $500,000; at least one building has had its deductible increased to $750,000.”

Rodin said the deductible increases are going to be inevitable for condo corporations that have made several claims historically. Buy-down deductibles are just one thing brokers are looking at to find these companies some relief.

Another issue for brokers in the space is to find insurer capacity, Rodin reported on the webinar.

“Today’s market is so different than yesterday’s market,” Rodin said. “Back in the day, you’d have one, maybe two companies subscribing on a risk. Usually, you could get one company to do it. But what’s presenting a bit of a problem to [brokers] is that condos are coming onto the market with much larger value than they ever have in the past.”

He noted that “subjectivity” is an issue in the condo market. Subjectivity describes a situation in which separate — or “sister” — condo buildings are attached to each other by means of underground parking lots, lobbies, or some other form of shared facilities. As a result, one insurer may be able to provide capacity for one building in the complex, for example, but not for other parts of the facility.

That means brokers nowadays might be working with anywhere between four and eight insurance companies to provide coverage for one condo facility, as Rodin observed.

“As a result, we as brokers are constantly seeking additional capacity,” Rodin said. “We’re constantly talking to other markets…about what is going on in the market today with the higher rates and the increased deductibles. We’ve seen profitability in the last 12 months, no doubt. We’ve [turned around] loss ratios that were extremely unprofitable. And I have to tell you, it’s deductible, deductible, deductible that I am seeing as creating a much more profitable environment for the insurance companies. We as brokers will leave no rock unturned. We’re talking to everybody to bring them into this space.”

And with those deductibles comes the brokers’ discussions about buy-down deductibles to help their condo corporation clients. Stay tuned…

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