STRATAS: How to Manage the Dramatic Increases in Insurance Rates

Over the past few months across British Columbia, there has been an industry struggle to renew strata-corporation insurance policies.  With renewals, the cost of insurance has increased anywhere between 50 to 300%.  

Insurance Deductibles have also increased substantially from $25,000 per claim to as much as $250,000 and $500,000 per claim. 

A strata includes ½ duplexes, multifamily low-rise wood-frame apartment buildings, townhouses or high-rise buildings.  

When a water failure or fire occurs in a multi-unit building, multiple units are often affected.  The result is an increase risk for damages and losses by the insurance industry.  

The Strata Property Act states that a strata corporation must insure for full replacement value of all common property, common assets and fixtures.  What this means is that the original construction in a duplex, townhouse, low- or high-rise apartment building is covered under the strata corporation insurance policy. 

Why are the rates increasing dramatically?  

In addition to world-wide catastrophes, we live in a high-risk earthquake zone, and with several major building claims in the province, there are less insurance companies who are covering strata insurance in B.C.

The hardest hit areas are in high-density Metro areas.  Resort properties and communities with developments of more than 250 units are also feeling the crunch. 

With a limited number of insurers, increase in claims, higher property and construction values and a high demand for insurance, a supply/demand imbalance has been created.  Insurers are imposing higher costs in order to minimize their risks. 

How does this affect the Strata owners in B.C.?  

If your strata are faced with a substantial increase in insurance rates, this will be reflected in your annual operating budget.  

For example, if your insurance deductible increases to $100,000, this means that any claims under $100,000 are not covered by your insurance.  And, subject to your bylaws, each owner is likely responsible for damages to their strata lot and the strata corporation is responsible for repairs to common property. 

The result is that many of past insurance costs will be passed onto the affected owners in the event of a claim.  An example would be if an owner of a strata lot has a hose in their washing machine that fails, flooding out the building, the owner could be responsible for the $100,000 deductible.   

I recommend that each homeowner of a strata lot in a strata corporation, consider condo-owner insurance to cover their liability in the event of a claim for damages to their units, the cost of a deductible or the risk of being sued by other owners if they cause a claim.  

If there is a claim for water damage caused by a failed pipe that is part of the Common Property, and, if the claim is more than $100,000, the $100,000 deductible becomes an expense of the Strata Corporation.  The Strata can pay it from the contingency fund or by a special levy to owners without the need for a ¾ vote resolution at a general meeting. 

How can your strata limit the risk?

Firstly, work closely with your insurance broker.  If your strata are faced with a change in insurance or the possibility of no coverage, you must immediately give notice to all owners.  If your strata are unable to obtain insurance, the strata must contact a lawyer to determine the liabilities for owners and council members and what the next steps you should consider.  

As a strata, maintain your buildings.  With all the owners to minimize risks.  Make sure that all individual strata lots with in suite laundry, upgrade the washing machine hoses to braided steel.  Failed rubber hoses in cramped closets and spaces are a chronic cause of water damage. 

Also, address other risks that could result in a claim.  Activities such as smoking as well as barbecues on balconies, heat lamps and in-suite hot water tanks should be addressed.  Repair access or building issues that could raise risks or injury.  Also, update your bylaws!  Bylaws that could result in human-rights complaints or court actions can also increase your risk. 

For prospective Buyers, I would recommend that before you purchase a strata lot, obtain a copy of the strata insurance and confirm the cost, deductibles for water escape and the renewal dates.  Over the coming year, increases will likely continue.