Many are sounding the alarm, claiming that the condo industry is facing an insurance crisis. We will explore this over the next few posts. In the meantime, to help us better understand the state of insurance in the condo world, we encourage our readers to take our survey on condo insurance. [This survey is easier to fill if you have your corporation’s insurance certificate in hand].
Are we facing an insurance crisis?
There have been many reports lately on condo corporations facing significant increases in both the cost of their insurance premium and their insurance deductible. Some blame climate change, extreme weather events, shoddy construction, the unique nature of condo living or greed in the insurance industry. Whatever the reason, both premiums and deductibles are on the rise across the condo landscape. BC may have been the first to sound the alarm but this trend is rolling east. Below are links to some recent news articles on this worrisome trend.
- Condo Insurance premiums shoot up over 780% in this BC complex
- Insurance premiums jump 700% in some Alberta condos
- Uninsured condo complex in Fort McMurray
- What drives the cost of condo insurance (audio report)
- ACMO has recently blogged on some Ontario corporations having a deductible as high as $500,000.
Another interesting article from CBC hit the nail on the head. It highlighted the fact that many condo purchasers do not factor in their budget the risk of significant increases in the corporation’s insurance cost or the risk of having to pay (either alone or collectively) the deductible portion of a claim. This can easily put a dent in the corporation’s budget (and by extension, in owners’ budgets).
How does insurance work in the condo world?
Insurance in the condo world is, in my view, one of the most complicated concept to explain.
- Who (between the owner and the corporation) is responsible to insure a unit or repair it after damage?
- What is covered by the corporation’s insurance and what is not?
- Who pays the deductible?
- Does it make a difference whether an owner is at fault?
It’s no wonder that our single most popular blog post is Who is responsible to pay for flood damage in a condo unit?
Who must repair the unit after damage?
In a nutshell (as it presently stands in the midst of changes to our Condo Act), unless otherwise provided in the declaration, the corporation is responsible to repair a unit after damage.
Let that sink in for a second and compare this with every other freehold owner in Ontario who must insure and repair their dwelling after damage. For some reason, the Condo Act approaches insurance differently and expects the corporation (through their owner’s pockets) to assume the responsibility of repairing each and every single unit after damage. For this reason, amongst others, the corporation is mandated by the Act to secure insurance coverage, on its own behalf and on behalf of owners, for damage to the units and the common elements that is caused by major perils.
The obligation to repair a unit after damage may be limited by the definition of what is included in the “standard unit”. Corporations will insure and repair up to the standard unit and the owners will be responsible to insure and repair what is beyond the standard unit. Naturally, the more finishes are included in the standard unit, the more expensive it is to insure and repair. Conversely, the less is included in the standard unit, the less expensive it it for the corporation to insure and repair the unit.
In a later post, we will blog on the benefits of adopting Standard Unit by-laws.
Who must pay the deductible?
The other important moving part has to do with the deductible. The deductible is the first portion of the claim, which the corporation has to pay before the insurance coverage kicks in and the insurer starts paying.
The deductible can greatly vary under each insurance policy. It could be as low as s$5,000 but could exceed $100,000 (or more as reported in the articles listed above). Corporations with very high deductibles are essentially self-insured for any claim below this financial threshold. This can be costly and risky to the corporation and to its owners. Naturally, having to pay a deductible every time there is an insurance claim can quickly put a dent in the corporation’s budget. That is because insurable events are unpredictable and seldom budgeted for.
Through a by-law (at least for now) corporations can shift the responsibility of paying the deductible to specific owners in certains circumstances. Think of situations where the owner is at fault or where the damage originates from an owner’s unit. Why would the rest of the owners assume the cost of this deductible? It may be fairer to shift it onto the owner at fault or onto the damaged unit. We will cover this in greater details in a later post.
Are we at a breaking point?
At the end of the day, there are no free picnics. The corporation must be insured. This is required under the Condo Act. The premiums and deductible (which are increasing across the board) must be paid by the owners. The more claims you make (or the more expensive they are), the more likely your corporation’s premium and deductible will increase. These increases are ultimately paid by…. you’ve guest it… the owners.
What is shocking the condo industry is that many of these increases are not based on past claims. These increase appear to be based on elements entirely outside of the corporation’s control. It may be time for the province to intervene, either by regulating the insurance industry or by significantly changing how it works in the condo world.
What can be done?
In the meantime, condo corporations should put in place proactive measures to reduce the risk of insurable events (regular inspections, proper maintenance of water pipes/appliances, water alarms, etc). Corporations should also consider adopting more robust Insurance deductible by-laws (keeping in mind that the future of these by-laws is uncertain with ongoing changes to the Condo Act) and more restrictive Standard Unit by-laws.
Help us get an accurate picture of how the condo world is coping with insurance challenges by taking our short insurance survey. It may be best (but not entirely necessary) for you to have in hand your most recent insurance certificate if you want to be able to answer all questions.