In just one year, strata insurance premiums have increased by 50% in Metro Vancouver and 40% across British Columbia, with deductibles seeing triple-digit increases over the same period.
These are the latest findings by the BC Financial Services Authority (BCFSA), detailed in its interim report — commissioned by the provincial government — on the factors that have led to unattainable insurance costs for condominiums.
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Within BC, there are three main for-profit, private sector brokers for strata insurance, with this sector of the insurance business in the province generating about $300 million in premiums and covering over $100 billion of insured property value.
Data collected by BCFSA indicates 31% of strata properties saw year-over-year premium increases of between 30% and 50%, while 9% of properties experienced increases of between 50% and 100%. Additionally, 6% of properties saw their premiums go up by over 100%, compared to 2019.
According to the provincial authority, both local and global factors are behind this sudden surge in premium rates.
The strata insurance business in BC is currently not profitable due to the volume of minor claims, specifically water damage from plumbing leaks and failures, which account for 46% of the total claim costs since 2017, and 56% alone in 2018.
Interestingly, insurers have deemed new buildings as higher risk, with average claims cost for buildings less than five years old being $18,000 compared to $10,000 for all ages. BCFSA analysts believe this may be a result of strata insurers absorbing costs that could be covered under the new home warranty programs.
“It is often unclear whether the cause of the loss was from a construction defect or poor maintenance. Industry raised questions regarding lack of clarity over what forms part of an individual strata unit, and the uncertainty that new home warranty covers consequential damage due to poor construction,” reads the report, which also blames poor and insufficient maintenance practices.
“Strata insurers are now appearing to be more reluctant to insure new buildings less than five-years-old. Other buildings being heavily scrutinized include those that are less fire resistant, older buildings, and buildings that have poor maintenance records.”
Combine the profitability issues of insurers with their weariness of being exposed to the earthquake risk in BC, these companies are increasingly looking to reduce their exposure to BC. This has led to insufficient strata insurance capacity to support condominium demand, and the decreased competition as a result of the reduced number in insurers has also contributed to the upward rise in premiums.
“The current unhealthy state of the BC strata insurance market is not fulfilling the needs of British Columbians, nor is it profitable for the insurance industry. All participants involved in this market have a role to play to return it to a healthy state,” continues the report.
“BCFSA intends to undertake further consultations with stakeholders in the market to look at what can be done to improve the overall state of the market.”
Condominium owners have been calling on the provincial government to intervene on the strata insurance premium issues, which could affect BC’s housing affordability if prolonged. BCFSA is slated to release a full report in Fall 2020.