Condo insurance deductibles are increasing – here's the way it may affect owners

$274,000. Allow that to number sink in for another.

That's just how much the annual insurance premium for a 181-unit condo building in Langley, B.C., increased in December 2021, more than tripling from $97,000 annually to $371,000.

OK. $245,000. Now allow that to number sink in. That's how much exactly the same condo building's insurance deductible increased, from $5,000 to $250,000.

Hundreds of B.C. stratas happen to be hit with massive insurance hikes within the last two years. As a condo resident, you're probably wondering how this will affect your individual condo insurance policy. Let's make use of the following example. Say your condo building has a $500,000 insurance deductible, and constitutes a water damage claim with its insurance carrier. However, the damage is located to possess originated in your unit. You could face what's known as a master policy deductible assessment. Quite simply, losing comes out of one's personal insurance plan. If that happens, but your personal policy only covers such assessments up to $50,000, you may be accountable for the remaining $450,000 yourself.

The biggest concern and point of confusion is how this will affect owners when the loss is found to have originated from their unit

For the last year, property insurance companies in B.C. happen to be grappling with how you can explain this to condo owners, and how to look for a condo insurance plan with sufficient coverage to protect them against these assessments. Unfortunately, policy options are limited.

Most condo policies don't cover high loss assessment amounts

“Since late 2021, we have been fielding a great deal of calls from condo unit owners,” says Stefan Tirschler, product and underwriting manager at Where you started Insurance Services Inc. in Vancouver.

“Even today, annually later, those calls continue to come in, as new condo owners subscribe to the market for the very first time and discover themselves needing to deal with the issue,” he says. “The changes that occurred on the commercial master policy side of the profession seemed to happen on the very short time. The visibility of the spiked all at one time, right in the tail end of 2021 and heading into 2021.”

Reasons for that steep increases facing condo corporations include more expensive building materials, extreme weather events, fewer insurance providers in the region and increased costs for that ones that remain.

While condo corporations are bearing the brunt of these hikes in deductibles and premiums, condo owners are facing the trickle-down effect. Tirschler says the largest concern and point of confusion is how this will affect owners if the loss is located to have originated from their unit.

“The question we're getting from condo unit owners, and rightly so, is 'Am I covered if the $50,000 water damage and mold deductible is assessed against my unit?'” he says. “That's the sudden big question they have now because that deductible didn't exist before.”

The highest water damage and mold deductible for condo buildings that Tirschler has seen in B.C. is a whopping $750,000.

Brokers need to be prepared to communicate these increases to customers and educate them concerning the kind of coverage they'll need

“We know what type of coverage the client may need however it may not be accessible in the market at this point,” says Tirschler. “Not all personal insurance providers will offer you a $150,000 to $250,000 quantity of coverage strictly for the assessment of a master policy deductible. Oftentimes, the bounds that are available for your are only a fraction of the amount that may potentially be assessed.”

As of today, Tirschler says, “Square One is mostly of the remaining providers to visit that top.”

Government and industry action over sky-high deductibles

In a bid to figure out a solution to this crisis, the Insurance Bureau of Canada created a task force this past year to interact insurers, governments along with other stakeholders in combating the problem. The B.C. government also took some initial measures last summer with the tabling of Bill 14, which may ensure clearer guidelines are explained for both strata corporations and individual unit owners on what they're responsible for insuring, and – perhaps most importantly – that the cap be placed around the amount a strata can assess against an individual unit. Alberta implemented such a cap this past year, where the maximum deductible amount a condo unit owner could be held liable for is $50,000.

In the meantime, however, brokers have to be prepared to communicate these increases to customers and educate them about the kind of coverage they'll need.

“I think, around the personal lines side, we know how to approach this,” says Tirschler. “We are watching this closely and we are responding to it.”

I am optimistic that solutions will come to market. When significant events arrive. . . the industry is responsive

While these increases appear to be largely concentrated to Alberta and B.C., particularly in the Lower Mainland region that includes Metro Vancouver, we could see rising condo insurance deductibles creep across Canada into other provinces. Personal insurance companies will need to go into development mode and figure out a way to provide policies that protect condo owners against these deductible assessments.

“Given the history that I've observed, I am optimistic that solutions can come to promote,” says Tirschler. “When significant events come along, whether it's a alternation in the market that changes what customers need, or maybe it's a large loss event that changes what customers want, the industry is responsive to such things as this.”

Tirschler recalls the 2021 Alberta floods and how, at that time, overland flood insurance was practically nowhere found.

“That event got people thinking about flood insurance, and thinking about buying it, and the industry responded quickly,” he says. “Now the vast majority of Canadians are able to obtain strong and affordable overland flood insurance coverage, which nobody might have expected as much as 2021.”

In response to the strata insurance crunch, Where you started introduced Condo Owner's Protection, which allows unit owners to purchase up to $250,000 in coverage against master policy deductibles. That's a nice beginning, but it will in the end take some time for other insurers to follow along with suit but for the government to legislate meaningful measures.

“We're taking a look at an element that has happened just recently,” Tirschler says. “The development cycle includes a bit of a longer lead time in to cope with what is, within an individual customer's circumstance, a five-fold increase in the amount of coverage they need for something which was once very stable.”