Condo insurance costs soared in parts of Canada in the past year. Here’s why

Click to play video: 'B.C. government making changes to strata insurance'
B.C. government making changes to strata insurance
The provincial government is taking steps to address skyrocketing condo insurance costs. Tony Gioventu of the Condominium Home Owners' Association of BC walks us through the proposed changes and whether he feels they go far enough to stabilize the strata insurance market. – Jun 24, 2020

Prices for condo insurance — or strata insurance, as it’s known in B.C. — recorded double-digit increases in B.C. and Alberta and a nine per cent jump in Ontario in the first three months of 2021 compared with the same period in 2020, according to data published by financial products comparisons site

For condo owners in B.C. premiums were up a whopping 27 per cent, for Albertans the increase was 16 per cent, and rising costs in Ontario came just shy of wading into double-digit territory, according to LowestRates. The company runs an index of insurance costs based on data from the insurance quotes it receives, which it says number in the hundreds of thousands every year.

Insurance premiums have become a scourge for condo owners in parts of Canada and especially in B.C., where costs were up on average 40 per cent year-over-year in early 2020, and the problem has become a hot political issue for the government of Premier John Horgan. Insurance prices have also been soaring in Alberta and are becoming a growing concern in Ontario and particularly condo-filled Toronto.

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But despite sizable year-over-year premium increases, there are signs condo residents may, at last, see a bit of reprieve, says LowestRates co-founder Justin Thouin.

“It looks as if prices are either flattening out or even declining for insurance, which we hope means that there’s an equilibrium there whereby insurance companies now feel that they’re charging enough to cover their risk of claims moving forward,” Thouin says.

In all three provinces, insurance premiums declined slightly in the first three months of 2021 compared with the end of 2020, breaking a trend of rapid increases since the last quarter of 2019, data from LowestRates shows.

Click to play video: 'B.C. strata insurers to end ‘best terms pricing’'
B.C. strata insurers to end ‘best terms pricing’

Why did condo insurance premiums skyrocket?

Experts trace the origins of the condo insurance crisis to what has been dubbed by many a “perfect storm” of overlapping trends.

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“About a year and a half ago, we started to see a number of factors, both within Canada and regionally specific, and also some macroeconomic conditions that were really starting to converge at the same time,” says Rob de Pruis, director of consumer and industry relations at the Insurance Bureau of Canada (IBC).

More frequent and devastating fires, floods, hail storms and other instances of severe weather are driving up costs for insurers. Insurers have been paying out $1.9 billion on average annually over the past decade for severe weather costs; that’s more than four times the average yearly payout of $425 million insurers footed between 1983 and 2008, according to de Pruis.

It doesn’t help that insurers also saw a decline in their income from investments, which, along with policyholders’ premiums, helps cover the cost of claims, de Pruis adds.

And, he adds, catastrophic natural disasters around the globe like the California wildfires, floods in Europe and China and hurricanes on the Eastern Seaboard have also driven up the cost of re-insurance, which insurers purchase to protect themselves financially against the risk of major — and particularly expensive — disasters.

While natural disasters affect homeowner insurance as well, providing coverage for condos has its unique challenges. One major difference is that apartment buildings are, effectively, a collection of individual homes.

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“You may have 100 units, so that would mean 100 sinks, 100 bathtubs, 100 toilets, which is different than a single-family home, for example, that may only have a couple of those,” de Pruis says.

That not only increases the chance of water leaks but also presents the risk that damage coming from one unit will spread to others, resulting in a much more costly claim, Thouin says.

Click to play video: 'Insurance rates skyrocketing for some Alberta condo owners'
Insurance rates skyrocketing for some Alberta condo owners

And while condominiums have existed in Canada for decades, many larger cities have put the emphasis on densification and “building up,” adding a growing number of increasingly large apartment buildings.

Nearly 1.9 million Canadians lived in condominiums as of 2016, according to the latest available census data from Statistics Canada. In Vancouver, more than 30 per cent of residents were condo dwellers, with that share standing at 22 per cent in Calgary and around 20 per cent in Toronto.

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Adding to the cost pressures for insurers is also the fact that the stock of condos in Canada’s major cities is aging.

“It’s just like anything: the older something gets, the more frequently you need to replace things,” Thouin says.

More frequent breakdowns in older buildings are contributing to drive up claims, he adds.

How condo owners can dodge mind-boggling premiums

Condo owners can buy insurance coverage to protect their belongings, storage locker, and any upgrades done to their unit, among other things. But the condo corporation also has its own insurance covering the building structure and common areas. Condo owners pay a portion of that master insurance via condo fees.

With insurance costs soaring, condo owners may face higher premiums, bigger deductibles, steeper condo dues and large out-of-pocket expenses.

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Canadians who need condo insurance can save by shopping around on financial comparisons sites, says Thouin.

It’s also a good idea to ask your building management or condo board how they’re keeping on top of maintenance, what they’re doing to mitigate risks, how much is in the building’s reserve fund and how many insurance claims have been made recently, the IBC website suggests.

“Some condominium corporations … do an amazing job on their maintenance,” says de Pruis. Others, he adds, not so much.

Click to play video: 'Another strata insurance premium horror story surfaces in East Vancouver.'
Another strata insurance premium horror story surfaces in East Vancouver.

What the future holds

Governments are also stepping in to try to curb the cost of condo insurance.

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B.C. has introduced regulations to improve transparency, although the province still has fewer legislative requirements for condo corporations compared with Alberta and Ontario, according to a recent report commission to Deloitte by IBC.

“Gaps in the legislation, including those regarding the frequency with which strata corporations update reserve funding and building maintenance plans … risk management training for strata councils, and clear definitions of the accountability for damage to strata units, should be quickly introduced in order to improve the overall claims profile of the province’s strata stock,” the report recommends.

In Alberta, licensing of condo managers is expected to start in December.

Still, whether the current dip in condo insurance premiums is the start of a trend or just a temporary blip remains to be seen, both de Pruis and Thouin say.

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