Jenna Dawson, Author at Normac | Canada's Insurance Appraisal Experts

Inflation Opens Opportunity for Brokers and Condo Boards to Re-evaluate Risks

Canada’s year-over-year inflation rate was at 7.6% in July 2022, easing from the 39-year high of 8.1% recorded the month prior. The impact can be seen in the skyrocketing costs of necessities such as groceries and gasoline, and in much larger commodities and services including the raw materials market and Property & Casualty industry. The record high inflationary period we are in has made it necessary for insurance brokers and agents to revisit their risks to ensure that their clients are adequately insured. A condo board having a professional 3rd party insurance appraisal completed safeguards the property from this risk.

Celyeste Power, executive vice president, strategic initiatives and advocacy at the Insurance Bureau of Canada (IBC) said, “You want to verify that your commercial property insurance coverage reflects the correct valuation, given replacement costs may have increased due to inflation … What we found through the hard market was risk mitigation and management is critical to ensuring a long-term, sustainable insurance scenario for any consumer.”

Bernard McNulty, chief agent and head of claims, Allianz Global Corporate Specialty added, “Typically, [in] our property coverages we see a modest annual increases in values … So, most brokers and clients would typically adjust in the range of 1.8% to 2% annually for increased values to reflect increased construction costs if they lost a building.”

But more recently, new baseline values have been reported to have increased 8% to 16% year-over-year. “Previously, it was a little bit more to do with how the valuations were being determined, whereas now it’s just the true cost of reconstruction,” he said. For this reason, having an insurance appraisal done by a specialist will ensure that your building limits reflect current construction costs.

The Covid-19 pandemic caused a nationwide supply and labour shortage which had largely negative impacts on the construction industry. Increased health and safety protocols slowed down construction sites, and costs for raw commodities such as lumber, iron-ore, and concrete went up significantly. The Producer Price Index (PPI), which measures the average prices Canadian producers receive or pay for goods, has outpaced the rate of inflation, showing a 11.9% year-over-year increase in July 2022.This is coming off an all-time high in May of 2022 where the PPI had reached 132.6 points. The key take-away is that although inflation is still hovering around the 7-8% mark, other factors related to constructions costs including costs for materials and labour are driving replacement values even higher.

The commercial insurance industry has entered a transitionary stage where the hard market is showing signs of stabilization, however rigorous underwriting conditions are expected to persist. Emerging issues such as rising inflation, supply chain disruptions, catastrophic weather, and increased cyber risks during the pandemic are some of the factors preventing the return of a soft market. In 2021, the surge in natural disasters caused by global climate change alone had brought the average annual cost of claims for property damage to $2 billion. As a result, insurers are paying special attention to risk quality in an effort to mitigate their losses.

Ensure you are adequately protected

Given the volatility of construction costs, and the record-high inflationary period we are in, it is essential that your property is adequately insured. We have seen cases where properties have been underinsured, exposing themselves to unnecessary financial risk and liability. Having an insurance appraisal done on an annual basis, by experts trained in local construction costs, will ensure that you not only have sufficient coverage, but that you are paying the right premiums.

Trend Watch: Rising Interest Rates, Housing Activity And Pricing

After a record breaking 2021 and start to 2022, both in terms of demand and price increase, rising housing rates are leading to a nationwide slowdown of home sales across most major regions. Major Canadian markets including Vancouver, Toronto and Ottawa have all seen resale declines and inventories increasing in these markets. An outlier has been the Alberta market, led by Calgary, which remains strong.

The largest driver of market change has been the Bank of Canada increasing interest rates through the spring and is expected to continue throughout 2022, raising the cost of home ownership. Nationally, home sales fell 8.6% on a month-to-month basis in May, according to CREA. This is following a large drop in April, leaving many markets across the country with demand levels that mirror those we saw pre-pandemic.

Bank of Canada’s Impact:

Rising rates have been introduced by the Bank of Canada, which resulted in a whole percentage point increase to 2.5% overnight on July 13, with another rate hike expected over summer. This is significantly higher than the .25% rate Canada has seen throughout the pandemic. This rate increase is to curb the highest inflation rates the country has seen in decades. The impact of these rate changes is a driving force to the softening decline in demand for resale homes.

Toronto Demand Softening:

Toronto experienced some of the country’s most rapid price increases over the past two years, but it is now well past its demand peak. The market has transitioned into more of a balanced market, with affordability strained by the quick rise in prices over the pandemic and the new interest rate hikes. Home resales dropped 9.3% from April to May, while inventories grew 26% from May 2021 to May 2022.

Vancouver’s Sensitive Market:

Similar to Toronto, demand for resale homes in Vancouver, the most expensive real estate market in the country, has also peaked. Resale homes demand has fallen 15% from April 2022 to May 2022 and the market has also transitioned into more of a balanced market. Vancouver, Canada’s least affordable city, will likely be the most sensitive market if rates continue to rise.

Calgary Still Bustling:

Unlike Toronto and Vancouver, Calgary has not been following the aforementioned demand trends. The Calgary market is selling briskly, with home resales above pre-pandemic peak levels, but supply is still too low to meet demand. Year-over-year sales have increased 6%, with benchmark prices rising 17% annually and 2% monthly, according to the Calgary Real Estate Board (CREB). The Alberta economy has remained strong through 2022, led by high energy prices, in-migration and affordability, unlike the rest of the country.

Home Prices are not falling yet:

While demand has softened as rates rise, prices remain much higher than at the start of the year in almost every housing market across the country. While prices have come down from the March 2022 peak, the HPI (Home Price Index) is still significantly higher than the end of 2021. The average rate of appreciation in these benchmarks across these twenty major regions is 11.7%. While we are starting to see prices come down in several major markets, including Greater Toronto and Vancouver, the seasonal adjusted HPI was still up 19.8% year-over-year in May.

Protect Your Assets:

While housing market prices have been volatile, it remains imperative that you protect your assets and ensure your condominium corporation remains adequately insured, especially as many provinces mandate that all Condominium and Strata corporations be insured to their full replacement cost value.

The only way to determine an accurate full replacement cost value is by obtaining an insurance appraisal by a professional 3^rd party firm. Doing so means you will be sufficiently insured in the case of a total loss, that you can receive better terms when binding your insurance policy, and that you fulfil your fiduciary duty if you are on the condo board or strata council.

Rising Inflation Could Lead to Underinsurance

As of April 2022, the Consumer Price Index has risen 6.8% year-over-year, marking a 31-year high inflationary period in Canada. The costs for building materials and labour have also gone up significantly due to supply constraints – far outpacing the rising rate of inflation. In many provinces, including British Columbia, Alberta, and Ontario, there is mandatory requirement to insure your condominium to full replacement cost. In the event of a total loss, owners could find themselves paying out of pocket for special assessments should there be a shortfall in coverage.

Several other factors must also be considered in the event of a rebuild including, professional fees, taxes, bylaw and building code revisions, and demolition and removal to name a few. All off these combined make up, what insurance appraisers refer to as, Total Insurable Value, or TIV. The Total Insurable Value is the single most important figure in expressing the cost to fully replace a property in the event of a total loss.

Costs of Materials and Labour Outpacing Inflation

With the current volatility of the costs to rebuild, the adequacy of your coverage should be reviewed – at the minimum – on an annual basis. Lumber, for example, has been particularly volatile in the past 6 months, hitting highs of nearly $1,500 per 1000 board feet this past March. It is now sitting at just over $650, at the time of this writing. Last month, residential and non-residential building construction costs went up 22.6% and 12.8% year-over-year respectively – one of the largest annual increases in the last decade.

In an unprecedented high inflationary period, the costs for insurance operations and claims increase more than projected. The insurance industry is “no stranger to dealing with inflationary pressures,” according to Don Forgeron, president and CEO of the Insurance Bureau of Canada (IBC). “In the property and casualty (P&C) insurance sector, inflation is running higher than in the economy write large … Homeowner’s replacement costs are running at 13% higher than pre-COVID.”

Ensure you are adequately protected

Given the volatility of construction costs, and the record-high inflationary period we are in, it is essential that your condo or strata corporation is adequately insured. We have seen cases where properties have been underinsured, exposing themselves to unnecessary financial risk and liability. Having an insurance appraisal done on an annual basis, by experts trained in local construction costs, will ensure that you not only have sufficient coverage, but that you are paying the right premiums.

Protecting Your Property from Extreme Weather Events

Climate Change is becoming an ever-increasing threat to the world. From flooding, landslides, extreme winds, and heavy snowfall in the winter, to hurricanes, sweltering heat, wildfires, and droughts in the summer, each season brings its own challenges and dangers. As these threats to the environment mount, so too does the threat they pose on your home.

Coastal cities such as Vancouver can be some of the most hard hit by these natural disasters, as seen in last winter’s floods and the increasingly prominent summer wildfires. But even land-locked cities such as Winnipeg can experience dangerous and damaging weather events, as seen with their recent and unusually late-in-the-season snowstorm.

So, what can you do to ensure you are properly protected against these disasters? Condominium corporations and individual owners alike can take steps to prepare their homes for an extreme weather event. Read below for some helpful tips to fortify your assets.

1. Obtain an Insurance Appraisal

A 3rd party  insurance appraisal is the only way to ensure that your building and common property are properly insured to full replacement cost value. While many insurance policies protect against extreme weather and “Acts of God,” if your property is not adequately insured and experiences a total loss, your corporation could face a significant deficit resulting in major special assessments or levies to pay for the shortfall.

Not having an appraisal at all may also subject your corporation to a co-insurance clause, where the owners will be financially liable for a percentage of the loss – typically 10-20% of the property’s replacement cost.  In British Columbia, Alberta, Ontario, and most Canadian provinces, strata and condo corporations are required to be insured to their full replacement cost value, and for good reason! Individual unit owners should inquire if their building has a current insurance appraisal, and if not, encourage the strata council or condo board to obtain one.

2. Retrofit or Upgrade Outdated Pipes

According to Canadian Underwriter, water damage claims accounted for the most commercial property claims in recent history, and this can be directly linked to extreme weather. Overflowing pipes from flooding and burst pipes from extreme cold can lead to devastating property damage.

April Pittendreigh, Vice President of National Claims at Gallagher Canada, told  Canadian Underwriter,  “water claims have more than doubled since 2015. But if it is a large water damage claim — like in a high-rise building in metro areas — those claims cost numbers have tripled since 2013.” Make sure your pipes are up to date and regularly maintained, and have an effective water mitigation plan in place to offset the impacts of extreme weather.

3. Utilize Fire Safe Plants and Landscaping

Droughts and wildfires have increasingly become more prominent in Western Canada. Dry plants are the perfect kindling for a wildfire and could leave your property susceptible to a fire loss.

According to HouseLogic, fire safe plants and materials can act as fuel breaks for wildfires. Here are just a few examples of fire safe landscaping options:

Pebbles or gravel in lieu of mulch
Concrete patios in lieu of wood decks
Pavers and rocks
High-moisture annuals and perennials native to your area. You can find lists of plants appropriate for your area at firewise.org
Invest in wire mesh to cover soffit, attic, and under-eave vents, as well as openings in areas below patios, decks, and porches, to limit the allocation of fire-prone materials such as dried leaves

4. Winterize your home

The winter season has been prolonging each year, especially in the Prairie provinces. As a result, it is imperative that you not only winterize your home at the beginning of the season, but regularly maintain for the duration of the cold months. Simple and effective ways to winterize your home are:

Inspect your home regularly for leaks or cracks. You will usually find these in windowsills, concrete foundations, and stucco exteriors
Insulate your attic and pipes
Keep furnaces up-to-date and clean. Not only is furnace maintenance imperative for keeping your home warm during the winter, but it can also save you money in the long run
Inspect your roof for any leaks or cracks that could cause water to accumulate and freeze in your base structure, windowsills, or attic
Repair loose or missing handrails on stairs, and keep plenty of salt and sand on hand for de-icing

5. Stay Up-To-Date on the Weather and Hazard Alerts in your area

Finally, staying on top of extreme weather and hazard alerts will give you ample time to prepare and protect your property against a loss:

Climate change is a real and increasingly dangerous threat, but there are proactive steps that can be taken to offset the risk. Make sure that your property is insured to its full replacement cost value and take the necessary steps to safe-proof your homes before a loss happens.

Accredited Insurance Appraisal Experts

At Normac, we specialize in insurance appraisals – it is the only type of appraisal we do! While other companies offer various types of appraisal services, our team specializes in replacement cost reports. There is no confusion in our valuation methods – our reports are reliable and accurate. Protect your assets with an insurance appraisal from Normac.

Appraisal Requirements Under the Condominium Act of Manitoba

Section 185(3) of the Condominium Act of Manitoba

The insurance required under this section must cover:

A) The replacement cost of the property damaged by perils to which the insurance applies; and

B) Any additional costs resulting from zoning and other legal requirements related to current construction standards, including coverage for the loss of value of any undamaged portion of the property, demolition and debris removal and any increase in the costs of construction, to the extent that the coverage is available at a reasonable cost.

Also, in section 185(9), condominium corporations must obtain, before the first unit is occupied and every five years after that, an appraisal that meets prescribed required for purpose of calculating replacement cost. Replacement cost – also known to appraisers and brokers as the Total Insurable Value (TIV) – represents the total cost to rebuild a property today, with the same utility.

In short, all condominiums in Manitoba must carry an insurance policy that covers all rebuild costs associated with building a like-for-like structure, at today’s construction cost and standards.

Construction Costs Impacting Replacement Cost Value

Since the start of the COVID-19 pandemic, the construction industry has seen strong inflationary trends that are putting upward pressure on material and labour costs – directly impacting the replacement cost values for condo corporations. The contributing factors include: shortages in labour in construction, rise in global commodity prices that include softwood lumber, steel, plastic, and lastly, extreme weather patterns. Building materials have experienced significant landing delays as poor weather conditions and lower productivity levels have led to a shortage of supply. Air, ground and sea transport have all reported delays as a result.

As seen in the chart below, we expect increases across both residential and non-residential properties in Winnipeg, Manitoba. We are seeing year-over-year increases at 16.6% and 9.7% respectively. On average, we are looking at an increase in reconstruction costs of 13% across all property types in Winnipeg.

*Source, StatsCan

There are many factors that can change replacement cost values including location, building shape, size, height, quality of finishes, common amenities, and HVAC systems, to name a few. If all the unique features of your property are not taken into account, it could leave your corporation exposed to being under insured.

Brandon Condo Fire

In the Fall of 2021, we witnessed a devastating fire in a condominium apartment in Brandon, Manitoba that had resulted in $11 million in insurable damages. It was reported that there was extensive fire damage on the top level of the four-storey building, while the lower levels had been subjected to water damage. All residents of the apartment were not injured and safely evacuated.

Ensure your Assets are Protected

It is impossible to know when there could be damage to your property – and as a result – having full and accurate replacement cost insurance in place fulfils the owners’ fiduciary duty to the Condo Act, while offering peace of mind to homeowners. Given the volatility of today’s construction market, it is critical to ensure your property is having an updated replacement cost value on an annual basis. At Normac, we specialize only in insurance appraisals and our 3-year programs with automated renewal reminders guarantee that your condominium will always be insured to full replacement cost.

Appraising Heritage Properties – Q&A

What is a heritage designation?

Provincial Heritage Acts (in BC, AB and ON) allow municipalities to designate properties to hold its cultural value or interest in the form of a by-law. A heritage designation can be applied to a single property, an entire neighbourhood or even a district. Once a property has been deemed of heritage value, it gains public recognition along with protection from demolition or unsympathetic alteration. The main purpose of this designation is to preserve the property’s cultural value and heritage components.

What factors are considered when appraising heritage properties?

Normac uses the Cost Approach to determine replacement cost. Estimates are based on replacing a property with an equally desirable substitute while taking into consideration what has changed since the original property was built. If an owner chooses to maintain the heritage attributes upon a rebuild, the costs associated with the current façade and unique building features must be included. We consider special materials commonly found in heritage properties (e.g. brick, terra cotta, stucco, gable ends & dormer windows, projections, etc.). Valuations for heritage properties tend to be on the higher end as a result.

In order to rebuild to a like-for-like structure, we take into account the materials needed to maintain the façade and interior build of the original structure, with exception of certain components – largely within the structure – that will need to be rebuilt to current building codes. For example, copper piping or heavy-duty cast-iron piping will have to be replaced with PEX. Other components deemed functionally obsolete such as plaster & lathe interior walls, aluminium wiring, hot water heating with iron radiators, would all have to be replaced with newer technology.

What about the additional soft costs required for the rebuild?

Given the unique components found in heritage properties, rebuilding those parts of the building is atypical and more expensive. As a result, we build into our cost estimates the additional soft costs incurred such as architectural, engineering, and design. Furthermore, rebuilding structures with heritage components are assumed to take longer to finish and this extra time has a corresponding increase in soft costs such as site security, project management, accounting, insurance, and so forth. If these costs are not included, the property owner(s) would be at risk in the event of a total loss.

Leave it to the specialists

At your discretion, Normac will work with you to include or exclude heritage components from our appraisals and adjust the Total Insurable Value to reflect this. As Insurance Appraisal specialists, any heritage property that we appraise will have an accurate replacement cost valuation.

Normac: Showing Up and Showing Out at Industry Events Across Canada

This summer, with vaccine rollouts in full effect, a handful of industry events were able to take place for the first time in over a year! As an industry leading company that is heavily involved in networking events, Normac was excited to get back into the swing of things (at times, literally). These summer events were a great way to reignite our relationships with clients and fellow sponsors, and gave us a glimpse at what a covid-free future would look like across Canada. These events, along with our internal events that support our company culture, are one of many benefits of working at Normac!

July

PAMA (Professional Association of Managing Agents) Golf Tournament at Westwood Plateau Golf Club, BC, July 16

The first event of the Summer took place in BC, at the annual PAMA Golf Tournament. The Normac Vancouver office was happy to sponsor a hole, with an interactive bingo game for the golfers! We also sponsored a foursome at the tournament, spearheaded by our fantastic Senior Client Services Manager, Shari Dawson. We even had a surprise guest visit our hole for a while – never a dull moment when you’re in the wilderness of BC!

Fore Ladies and Fore Men Golf Tournaments at Coyote Creek Golf Course, BC, July 21 & 22

This smaller golf tournament had an “around the world” theme. Normac’s hole was Mexico themed, fit with handmade tortilla chips, and canned margaritas. Guests at this tournament had a blast competing for hole prizes, such as the Ladie’s Longest Drive and Men’s Closest to the Pin.

August

CCI Grand River Golf Tournament at Brookcreek Golf Club, ON, August 19

Although not physically present, Normac sponsored the Longest Drive Prize at this year’s first annual CCI-Grand River golf tournament.

PAMA Summer Hike in Bridgeman Park, BC, August 20

The BC Business Development reps laced up our hiking boots and hit the trail for the PAMA Summer Hike. A beautiful hike through Bridgemen Park was followed by a small BBQ with lawn games and mingling. Despite our signature Vancouver rain making an appearance, turnout was high for this event, and it will likely become a staple of the PAMA events schedule.

September

CCI North Alberta Golf Mixer at Cattail Crossing Golf Course, AB, September 10

Our Normac Calgary reps enjoyed a day in the sun at the CCI North Alberta Golf Mixer. This was our first event since Normac acquired Reliance Asset Consulting, and it was a great way to meet new and returning clients and tell them about our merger. Normac had once again sponsored a hole and a foursome, who we decked out in Normac swag.

REIC BC (Real Estate Institute of Canada – BC) Golf Tournament at Hazelmere Golf Course, BC, September 10

The Normac Vancouver office hit the green one last time in September for the 25th Annual REIC Golf Tournament. The day started off with a buffet lunch, followed by about 5 hours of golf! Door prizes were also given away, with Normac giving away a Nespresso coffee maker.

Maple Ridge Community Management (MRCM) Golf Tournament at Glen Eagle Golf Club, ON, September 23

Normac also sponsored a hole at the MRCM Golf Tournament. The day started out rainy and bleak, but quickly turned into a sunny day full of fun! Our Normac Toronto reps hosted an interactive bingo game at the hole, along with spiked lemonades. This was the perfect cap to our Summer events in Ontario. We hope to be a part of many more in 2022!

PAMA Whistler Great Escape Tradeshow and Banquet, BC, September 23-25

The final, and largest event that Normac participated in this Summer was the PAMA Whistler Great Escape. This was the first overnight trip hosted by PAMA in over two years.

The event took place at the beautiful Westin Whistler. Our Normac reps enjoyed a weekend with industry leaders and newcomers alike. The event was kicked off with a tour of Valley Illumina, followed by a tradeshow the next afternoon, and a banquet dinner filled with trivia, games, drinks, and great food. The event ran smoothly and safely, and we had a wonderful time catching up with clients face-to-face!

National Day for Truth and Reconciliation

On March 9, 2023, the Province of British Columbia passed legislation to make September 30 a statutory holiday to commemorate and honour the Indigenous lives that were lost, and the Survivors, families, and communities who continue to be impacted as a result of the Indian Residential School system in Canada. This day is called National Day for Truth and Reconciliation and will be held annually on September 30th.

All Normac team members will be observing this day on Monday, October 2nd, 2023 and our offices will be closed as the National Day for Truth and Reconciliation statutory holiday is on a Saturday in 2023. We encourage our team to take this time to learn more about Canadian and Indigenous history and culture. Acknowledging the historic and ongoing, intergenerational trauma Indigenous communities face as a result of the residential school system is an important and necessary step toward reconciliation.

Included below are some resources regarding the history of residential schools, education on reconciliation, and links to programs which you can help support through your donations. We all play a vital role in truth and reconciliation in that we honour and remember, celebrate resilience, and demonstrate a commitment in planning for a more inclusive and equitable future.

Education

Videos:

Heritage Minutes: The Story of Chanie “Charlie” Wenjack

Historic Canada: Residential Schools in Canada: A Timeline

The Story of Shi-Shi-Etko

Websites:

Four Seasons: Reconciliation Education

The National Inquiry into the Missing and Murdered Indigenous Women and Girls

First Nations Education Steering Committee

Legacy of Hope Foundation: Where are the Children?

The Council of Canada: Safe Water for First Nations

The Residential School System

Children’s Education & Resources

Podcasts:

Unreserved with Rosanna Deerchild

The Canadian Encyclopedia: Residential Schools Series

Donations

The Native Woman’s Association of Canada

Indspire: The Education of First Nations, Inuit and Métis People

The Indian Residential School Survivor Society (IRSSS)

Legacy of Hope Foundation

KUU-US Crisis Line Society

For CRISIS SUPPORT 24/7 call the KUU-US Crisis Line Society at 1-800-588-8717

Normac’s Annual BBQ – The Big Meet!

In August, the Normac team celebrated our Fiscal Year End with our annual Team BBQ! Continue reading to learn more about Normac’s dynamic company culture and exciting social events!

Social Events at Normac

Normac is committed to cultivating an inclusive and fun company culture for everyone that works for us. Our team members are the heart and soul of our company, and we take pride in the monthly Social Events arranged by our Social Committee!

The Normac Social Committee is a volunteer group of Normac team members who organize all of our Social Events! During the pandemic, we had the challenging task of organizing all virtual events for our team. However, the transition was well received by our tight-knit team and these virtual events soon became something everyone looked forward to at the end of the week. The virtual games and events we organized ranged from Pictionary and Catch Phrase, to virtual Escape Rooms and Office Olympics! Now, as vaccination rates are on the rise and businesses start to re-open, we are excited to start organizing more in-person events for our team as provincial health direction allows.

The 2021 Normac BBQ

In August, as provincial health directives allowed, we were lucky enough to be able to throw an in-person, outdoor BBQ for our team! This was the first in-person social event that our team was able to organize in over a year.

Additionally, as we acquired Reliance Asset Consulting from Calgary back in June, this was the first time many of our team members met those who we now call the “Normac Calgary Team.” This was a much needed ice-breaker with the new team members, and the day was filled with laughter and great conversation.

In order to ensure an extra level of safety, we ordered delicious individual takeout meals for each team member from Tacofino, enjoyed good music and games, and capped off the day with a game of Kickball. Our team is quite the competitive bunch, and this game was no exception! At the end of a tight game, the Blue team prevailed with a score of 13 points, to the Green team’s 10. Way to go, everyone!

Normac fosters an inclusive work environment that takes pride in incentivizing our team to always be the best they can be! We know the modern-day worker appreciates a flexible work-life balance, and we take that into account. With our in-office beer fridge, dog–friendly office, and monthly Social Events, we make working for Normac an enjoyable experience for everyone.

Interested in working for Normac? We’re hiring! Apply today for our Vancouver Office – Client Services Administrator position by emailing communications@normac.ca with your resume and cover letter.