Recently, we posted articles about the hard insurance market and its impacts on the BC condo housing market. The news about sky-high insurance premiums and deductibles, condominiums with loss limits or no coverage at all has many condo owners and boards panicking . They are turning to their insurance brokers and asking, what can we do to make our property more attractive to insurers?
The answer isn’t simple and the results won’t be seen overnight, but the best thing that condo boards can do is take better care of their property.
What Are Insurers Looking For?
The insurance industry is not regulated and as with any business, they can choose where to conduct business based on where they can be successful. In today’s technology era, access to data has become more available and insurance companies are seeing their losses instantly and accurately. Because of this, they can respond more quickly by pulling out of lines of business that are not seeing profits. With fewer players, the remaining insurance companies are tightening their underwriting and increasing their prices.
Multi-resident properties are especially prone to more claims. This is due to the construction of the properties (a leak on the 18th floor of a high rise building can do more damage than a leak on the second level of a single family home) and because of the community-mentality many owners have (“it’s not my problem, it’s the corporation’s problem”). Because of this, many insurers have backed out of the multi-residential property market.
Those insurers who have stayed in the market are looking for properties with the least amount of risk. The Insurance Bureau of Canada lists 10 factors that typically affect premiums, and here is a summary of the most crucial points:
- Replacement Cost: those buildings which are more expensive are under more scrutiny
- Claims History: past claims are often indicative of future claims
- Repair and Maintenance: insurers are looking at your pipes, roof, electrical and more to determine if you are at risk of an accident caused by deficiencies
- Location: are you in an at-risk area for fire, flood, earthquake and if so, what preventative measures have you taken
There are a number of things both strata / condo corporations and unit owners can do to protect themselves and makes themselves more attractive to insurers.
What Can Strata / Condo Corporations Do To Protect Themselves?
- Obtain a Depreciation Report or Reserve Fund Study and strictly follow a regular maintenance, repair and replacement plan. Increase condo fees annually to ensure your contingency reserve fund is adequately funded. This can be one of the single best ways to ensure your building has fewer claims.
- Revise bylaws to make the corporation responsible for the inspection of unit appliances and fixtures – check dryer vents, smoke detectors and fire alarms, aging appliances. Make unit owners responsible for repair or replacement when required.
- Invest in preventative measures such as installing sprinkler cages in hallways or water leak detectors.
- Ensure all trades have insurance before conducting any work on your property.
- Educate owners to be more careful and take more responsibility for their actions. The corporation should reinforce the idea that insurance should not be used for maintenance, it should be used for accidents which are not preventable.
What Can Unit Owner Do To Protect Themselves?
- Ensure they have unit owner’s insurance to protect personal property and unit betterments.
- Find out what are the corporations bylaws related to passing on deductibles to owners and ensure they have adequate coverage should they be deemed responsible for a claim.
- Follow the recommended usage and maintenance for all appliances – don’t run washing machines and dishwashers if you are not home.
- Follow the corporation’s annual maintenance guidelines, such as turning off water lines in the winter and in general, take better care of their units and shared property.
Ultimately, it comes down to changing unit owner behaviour. The nature of community living is that people have the mentality that if something happens, “it’s not my problem.” They are quick to make claims and resist taking responsibility. This can be seen in the number of claims made by multi-unit residences as compared to single family homes or commercial properties. More than 90% of claims are coming from water problems: appliances breaking down, aging piping issues, accidental triggers to sprinklers. All of these are avoidable when corporations and owners follow proper maintenance and replacement routines. You can find some relevant tips and information on the Government of BC official website.
It is crucial to also be proactive in communications with insurance brokers. See what specific advice they have and which projects could be taken on to make a property more attractive to insurers. Find out what steps they are taking with marketing your property and determine the communications plan to unit owners about potential increases. While owners and corporations won’t see improvements to their premiums and deductibles immediately, over time, this will help increase their attractiveness to insurers and decrease their overall risk.
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.