Are We Headed for a Collapse of the BC Condo Market?

A recent article from CTV News has some condominium owners in BC panicking as they grapple with an increasingly hard insurance market that could leave some strata corporations unable to pay high premiums or without coverage at all.

The Hard Insurance Market in BC

The onset of the hard insurance market is affecting the condo market across the country, with BC seeing especially difficult side effects in the multi-unit housing market. While climate change and an increase in the amount of property claims can be blamed, ultimately the hard market is caused by insurers operating at a negative cash flow for too long. The global insurance industry has been taking hit after hit over the past decade, following a long soft market where low premiums and deductibles contributed to annual losses for insurance companies. The multi-unit residential industry has not been profitable and many insurers are pulling out of the market all together. Chuck Byrne, Executive Director of the Insurance Brokers Association of BC (IBABC) explains, “The bottom line is that [the insurers are] not obligated to insure anybody for anything.”

For BC condo owners who were able to obtain insurance coverage for their strata, increasing insurance premiums and deductibles may lead to expensive special levies for condo owners. There are several hundred buildings currently citing 50%-400% increases in premiums which simply can’t be covered by a contingency reserve fund and must be funded through a special assessment. As stratas anticipate future increases, considerations must be made to increase monthly strata fees in order to fund the premiums in upcoming years. The question is whether home owners will be able to afford the increase to their monthly spends.

In other cases, some condominium buildings are left without coverage at all or with a loss limit, where the insurance does not cover total replacement cost.  In this situation, owners are at significant financial risk should a major peril ever occur. For instance, if an apartment building without insurance were to succumb to a fire, the self-insured owners who would be partially or entirely responsible for the rebuild.

BC Heading Towards a Collapse?

This is having trickle down effects on BC’s housing market. On one hand, mortgage lenders might not approve mortgage loans on a condo purchase where there is no insurance in place. Additionally, we may see situations where buyers are backing out of deals where adequate insurance has not been secured by the strata. When you put together BC’s ongoing issues with housing and affordability with the rise in premiums and deductibles, you have a recipe for disaster which could be leading to a collapse of BC’s condo market.

Some claim this could have been foreseen as the market stayed too soft for too long. But CHOA Executive Director, Tony Gioventu, claims that the extent of this crisis could not have been predicted. Those taking the hardest hit include expensive buildings with premium facilities and finishings, buildings with a high number of previous claims, or those who have failed to keep up with regular maintenance and repair.

The Insurance Bureau of Canada says that it is communicating with insurance brokers, underwriters, and condo groups to address the issues, with an upcoming regional meeting in BC scheduled for March. Other proposed recommendations coming from the IBABC include changes to the BC Strata Property Act:

  • Implementing a $50,000 cap on loss assessments to protect unit owners when a strata’s insurance deductible can be passed onto them if they are found at fault for a claim.

  • Introducing a standard definition of a strata unit, similar to what Alberta has just recently implemented.

The IBABC acknowledges that this won’t solve the imminent problem, but that it will help to build a strong foundation and “long-term stability [in] the BC strata insurance market.”

Normac has its finger to the pulse of the insurance industry and in response to the recent changes has implemented a new 60-90 day valuation delivery policy. In an effort to mitigate stress and provide brokers with ample marketing time, we now deliver our reports sooner.

For a no-obligation proposal, click here.

Standard Insurable Unit Descriptions 101

Standard insurable unit description detail gas range

WHAT IS AN SIUD?

SIUD stands for Standard Insurable Unit Description

A Standard Insurable Unit Description is an outline of all the standard finishings and fixtures of a condo unit based on original construction. It does not include any upgrades or betterments made by an individual owner.

What is the purpose of AN siud?

The purpose of the description is to provide clarity for condo boards and owners when determining the responsibility of insurance coverage in the case of a partial or total loss. All items listed in the SIUD would be the responsibility of the condo corporation’s insurance to replace; all other upgrades and betterments would be the responsibility of an individual owner’s personal property insurance.

Do we need one?

As of January 1, 2020, all condo corporations in Alberta are required to obtain an SIUD by their next insurance renewal.  This must be provided to the corporation’s insurance provider and to all the unit owners.

What about bare land condos?

The responsibilities of a bare land condominium are no different from a conventional condominium corporation, such as an apartment building or townhouse complex.  If the condominium bylaws state the corporation is responsible for insuring all standard finishes, an SIUD must be created.  If the bylaws state that the owners are responsible for reconstruction of their units, then an SIUD would not apply.  It is imperative that property mangers review the bylaws to confirm if an SIUD is needed or not. 

How do we get one?

If an SIUD has been provided by the developer, that SIUD must be used and it cannot be changed or altered.

If there was no SIUD provided by the developer, then a corporation may obtain one from a professional firm such as Normac.

Property mangers should review all disclosure documents to confirm if this has been created by the developer
or if the condo corporations needs to obtain one.

What sorts of finishes and fixtures does it include?

In their information publication, Service Alberta has determined that an SIUD must be created for each class type of a corporation and it should include all of the following fixtures and finishings:
  • floor coverings, wall coverings and ceiling coverings
  • electrical lines and fixtures, including lighting fixtures
  • plumbing lines and fixtures
  • natural gas lines and fixtures
  • fixtures with respect to air exchange and temperature control
  • walls that do not form the unit’s boundaries, and any windows and doors located in those walls
  • cabinets and counter tops
  • non-chattel appliances

what are class types?

In one condo corporation, there may be multiple class types. For example, a phased development with both townhomes and apartments would have at least two class types. An SIUD must be created for each class type and state which units fall under which class. 

How can our board adopt an SIUD into our by-laws?

According to the Government of Alberta, a corporation has three options to adopt an SIUD:
  • a board resolution
  • AN ORDINARY RESOLUTION
  • A SPECIAL RESOLUTION

If the board approves the SIUD at a board meeting, it must be presented at the following AGM to be approved or amended by ordinary resolution. From here, it must then be registered with the land titles offices.

How do we register our SIUD with the Land Titles office?

All approved SIUDs, either obtained by the corporation or provided by the developer, must be registered with the Land Titles office by using this approved Government Form.

You can find more information on the Government of Alberta website, here.

What is normac's SIUD process?

Step One
Request SIUD Proposal
You can request an SIUD proposal through our REQUEST A QUOTE portal of our website, or by contacting one of our client services administrators.
Step One
Step Two
Choose Service Type
Self directed (Condo corporation to inspect standard unit and answer questionnaire) OR Normac inspected (Normac to conduct site visit and prepare SIUD). *Please note that all interior inspections are suspended due to the COVIDD-19 pandemic until further notice. Only self directed SIUDs are being offered at this time. A Property Information Collector will consult with you to ensure we are able to gather the correct information to deliver the SIUD outline.*
Step Two
Step Three
Authorize Quote
Once you receive and review the quote, send back a signed copy to authorize and initiate the next steps.
Step Three
Step Four
Option 1 - Normac to Conduct Site Visit
One of our professional Property Information Collectors will complete a visual inspection of at least one unit to determine all standard finishes and fixtures. We will then prepare the outline and deliver the SIUD to the board. *Not being offered at this time.*
Step Four
Step Four
Option 2 - Board to Complete SIUD Questionnaire
The condo board will designate one of their own to inspect a unit and make note of all standard fixtures and finishes. Using the information collected, the board member will submit Normac's online questionnaire for review, including any necessary building plans. Normac's expert team will review the submission for completion and accuracy and deliver the outline to the board. *This is the only option being offered at this time due to the COVID-19 pandemic. Our team of professionals will assist you through this process and ensure you receive the support you need to complete your SIUD.*
Step Four
Step Five
Review and Adopt the SIUD
Once delivered, the condo corporation has the opportunity to review and amend the outline to ensure accuracy and consistency with the corporation's bylaws. The SIUD must voted in by the condo corporation at an AGM or SGM.
Step Five
Step Six
Register with Land Titles Office
Once the SIUD is approved by the corporation, the board must complete this form to register the SIUD with the Land Titles Office.
Step Six

Can I use the SIUD Outline from Normac right away?

In some instances, the board and condo corporation may choose to amend the standard finishes and fixtures listed in the SIUD Outline. This could be for several reasons, like if the unit inspected did not have all standard finishes, or if they would like to add further clarity.

After the outline is created, the SIUD must be voted in by the corporation and it must be registered with the Land Titles Offices in order for it to comply the Alberta Condominium Act.

What happens if a condo's insurance states it includes betterments?

A standard insurance unit description must account for the original fixtures and finishes of all units as a baseline.  If the condominium bylaws states that it includes betterments, a separate document must be created to account for all owner upgrades.

What should I do now?

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REQUEST A COMPLIMENTARY, NO OBLIGATION PROPOSAL TODAY

Hard Insurance Market Persists Through 2020

Toronto Construction Street View

As insurance companies experience significant losses, adjustments must be made for them to remain profitable. Whereas in the past, insurance companies offered competitive rates with lenient underwriting guidelines, the cyclical nature of insurance has turned this around. Canada is experiencing a hard insurance market where premiums are on the rise and policies are much more difficult to obtain. While some carriers are taking on preferred risks, others have completely stopped writing insurance at this time.

Hard Vs. Soft Markets

Insurance has a life cycle which is characterized by two periods – soft and hard. A soft insurance market reflects lower premiums, broader coverage, relaxed underwriting criteria, more policies, as well as healthy competition among carriers. On the other hand, a hard insurance market reflects higher premiums, strict underwriting criteria, less policies, as well as less competition among carriers. We are currently facing a hard market.

Rise in Premiums + Deductibles

Since the start of the hard insurance market, premiums have been skyrocketing nationwide. British Columbia strata corporations are facing premium hikes between 50% and 300%. Tony Gioventu, Executive Director of the Condominium Homeowners Association, (CHOA), adds that, “deductibles are going from the conventional $10,000 or $25,000 to $100,000, $250,000 or $500,000.”

Subsequently, some condominium boards in Alberta are seeing condo insurance increases up to a 700%. Ryan Chernesky sits on the condo board of a building he owns two units in. In 2018, the premium on the condo building was approximately $51,000. Last year, the insurer declined renewal and only two other companies were prepared to take the risk. The lowest quote was approximately $402,000 – an increase of 690 percent.

“We’ve been told by the insurance companies that it’s to do with the 2016 wildfire and there is an increased risk associated now and various other reasons on a more global scale,” Chernesky said in this article.

Why Now?

Current underwriting standards have been shaped in response to a series of global and local catastrophic events, a lawsuit-first approach, and an increase in construction costs.

In Canada, we have seen an increase year over year in property claims caused by severe weather. It is not just one single event that causes higher claims, but rather a series of events happening across the country.

  • There are approximately 5000 earthquakes that are recorded in Canada every year, with the majority in British Columbia. The risk also exists in eastern Canada, along the St. Lawrence and Ottawa River valleys.

  • In 2016, the Fort McMurray wildfires that swept through Alberta estimated a total loss (direct and indirect costs) of $9.9 billion dollars, with an estimated $3.7 billion in claims.

  • The 2019 spring floods in Ontario, Quebec and New Brunswick have also contributed to the increase in premiums. About, one in three Canadian homeowners are insured for overland flood risk, the Insurance Bureau of Canada said in this article released June 18.
Top Insured Damage Severe Weather Events in 2019 - Insurance Bureau of Canada
Catastrophic events like these have resulted in billions of dollars in losses for insurance companies. According to the Insurance Bureau of Canada, eight out of the top ten highest loss years on record are between 2010 and 2019.
Top-10 Highest Loss Years on Record - Insurance Bureau of Canada
In addition, the cost of building materials such as brick, wood, and cement has increased. As reported in this article, Rider Levett Bucknail (RLB), an international property and consultancy firm, stated that construction costs in Toronto has been increasing faster than any of the 14 North American markets, which include Boston, Los Angeles, New York, San Francisco, Washington DC, and Calgary.
Indicative Construction Costs - Rider Levett Bucknall

Cause + Effect

Insurance companies are taking a closer look at what the actual replacement cost of a building is and are finding that many buildings are underinsured. This may have been acceptable in the past, as a total loss was unlikely, but as natural disasters are more prevalent and building costs on the rise, insurance companies are now requiring buildings to be insured to their full replacement value.

As insurance appraisal experts, Normac stays on top of current construction costs and is aware of industry developments and trends. As a result, we deliver the most accurate and reliable insurance appraisals, and ensure that your properties are protected and always adequately insured to full replacement value.

For a no-obligation proposal, click here.

Alberta Condominium Property Act Amendments Finalized

On January 1, 2020, the Phase III of Alberta Condominium Property Act Amendments took affect. This came after a six month pause instituted by the Government of Alberta, specifically by the Honourable Minister of Service Alberta, Nate Glubish, in an attempt to cut red tape . The government wanted to alleviate the “administrative burden on condo corporations while protecting condo owners and their investment,” according the Government’s website. During this period, stakeholder round tables were held so that feedback from the industry could be incorporated. In the end, administrative changes, monetary sanctions, and increased clarity of the responsibilities of condo boards and corporations were all integrated into the Alberta Condominium Property Act Amendments.

STANDARD INSURABLE UNIT DESCRIPTIONS

One of the more significant changes has been the introduction of a Standard Insurable Description (SIUD). And SIUD must be adopted by all residential condominium corporations into an amended bylaw and filed with land titles by the first insurance renewal date after January 1, 2020.  Moving forward, developers will be responsible for creating and delivering an SIUD to the owners once occupancy takes effect.

Once a Standard Insurable Unit Description is passed by the condominium corporation, the outline will help clarify what is a standard feature that is to be covered by condo insurance and what is an improvement to the unit that is to be covered by the home owners personal insurance. The goal is to prevent future disputes between unit owners, the condominium corporation, and insurance companies should there ever be an insured loss.  An SIUD can additionally help ensure the condominium has the correct level of insurance to cover the standard finishes.

You can read more about SIUDs and their implementation here.

DEDUCTIBLES

The updates to the Alberta Condominium Property Act Amendments also change practices around condominium insurance deductibles.  Corporations will now be able to recover up to $50,000 from unit owners to cover insurance deductibles if damages originated from within their unit or in an area that the owner is responsible for, like a balcony, even if it was not their fault. Under the new legislation, the unit owner could be responsible for up to $50,000 of the deductible. If the deductible is only $30,000, the owner’s liability would be for the full $30,000. If it’s $75,000, the owner’s liability would only be for a capped $50,000.

As there is a potential for a new expense to unit owners in the event of an insurance claim several steps should be taken to mitigate their risk, as reported on Global News.

  1. All condominium owners should have an unit owner’s insurance policy.

  2. Ensure that deductible coverage up to $50,000 is included in the unit owner’s policy, and if not, ask to have it added.

  3. Owners should also ask their property management firm or condo board for a copy of the corporation’s certificate of insurance which will outline the deductible amounts.

OTHER CHANGES

Other changes that took place January 1, 2020 as part of the Alberta Condominium Property Act Amendments are listed on the Government of Alberta website. These include, but are not limited to the following:

  • The requirement to provide the minutes of all board meetings in the package for Annual General Meetings (AGMs).

  • Changing the requirement to disclose draft AGM minutes from 30 days to 60 days after the AGM.

  • Changing the maximum fee for an estoppel certificate from $100 to $200, or $300 if rushed, and add a disclosure statement document fee of $100, or $150 if rushed.

  • Changing the per-document cost for paper documents from a $10 flat fee to $0.25 per page, or $10, whichever is more.

 

  • Allowing condominium corporations to borrow up to 15 per cent of their annual revenue as the default limit but also allow that limit to be changed through their bylaws.

  • Removing the requirement to provide 60 days preliminary notice of an AGM and accept owner submissions for the agenda.

  • Eliminating tiered rates for deposits condominium owners provide to their corporation when renting out the unit they own and setting the maximum for these deposits at $1,000 or one month’s rent, whichever is higher.

  • Broadening the list of those who can conduct reserve fund studies.

TIMELINE

Condominium corporations will still have one year in which to pass an ordinary resolution to bring their bylaws into compliance with the changes to the Alberta Condominium Property Act. This process is limited to bylaw amendments that address actual conflicts that pertain to the updates in the new Condominium Property Act, and cannot be used to approve other changes to the bylaws which would still need to be approved via special resolution. 

Normac’s expert property information collectors and insurance appraisers are uniquely positioned to assist in the process of defining a standard insurable unit description and can help prepare the outlines for condo boards and corporations. Contact our client services team today to learn about our various SIUD offers.