Your strata insurance probably just went up 50 to 300% and now a simple toilet leak could potentially bankrupt you. What happened? Reliance Insurance Specialist Douglas Chan sits down with Adam & Matt to detail the rapidly changing strata insurance market and the prognosis is not good. This will cost you money: in strata fees, in potential special levies, and in your personal insurance policy. What does this mean for the condo market? Are condos still a good investment or has Vancouver just become risky business? This episode will definitely shake your nerves and rattle your brains!
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Tell us about yourself.
My name is Douglas Chan and I’m an insurance broker at Reliance Insurance Group. I specialize in personal insurance and have been in the industry for over 10 years.
There seems to be a crisis in strata insurance recently, can you talk a bit about what’s going on?
Most people are used to seeing their insurance premiums go up every year. But specifically with home insurance, you’re seeing agencies with more losses piling up, and eventually you fall into a period that’s known as a “hard market.” This means that guidelines are getting tougher and rates are rising.
The strata market right now is especially tough. What we’ve seen in the past few years is a ton of water damage in these stratas. Normally you see your deductible somewhere between $5,000 to $25,000, and those have ballooned to $100,000 and over.
What are the concerns for stratas?
A lot of these companies are struggling to find renewal terms. My clients, the unit owners, complain that they don’t know what’s going on, that their stratas are getting month to month extensions, and it’s uncomfortable for the owners, to say the least. The monthly premiums are going up as well, sometimes up to triple as high as they were beforehand. Because of this, stratas are passing the increased costs along to owners in the form of higher strata fees, as well as borrowing against their internal contingency fund.
Is it possible for stratas to not manage to get insurance?
In some cases, stratas will have multiple insurance agencies come in and each agency only takes on a fraction of the building. Even then, stratas are sometimes not able to get 100% coverage.
How is this impacting the owners’ personal insurance?
It greatly limits your options. Before, if you go to a general brokerage, you’d get six or seven options depending on what you’re looking for. Now, with the current strata deductibles being what they are, you’re limited to two, maybe three options.
Back in 2007, you could get your insurance policy for $200 to $300. Today, you’re about triple that, especially if you’re a first time owner and you don’t have discounts to offset that. Regardless of how many options you have, your premium is going to go up. You’re likely going to see condo premiums eclipsing the premium for standalone homes. On the year-to-year, you’ll see about a 15-20% increase.
For the homeowners whose strata’s water damage deductible is as high as $500,000, there’s two options. Option 1: There’s only one insurance company out there who offers a lot of coverage for the strata deductible. Otherwise you’ll have to go with option 2, the other insurance companies that usually offer comprehensive packages. So in order to get full coverage for your deductible, you’ll need to artificially increase your contents limit, bringing you up to a higher level of overall coverage.
Is there a possibility that other agencies will see this as an opening and help to alleviate the pressure?
I don’t think another insurance agency who’s not already in the market will swoop in and clean everything up. Eventually the market will swing the other way and soften. What I think will provide some relief is that someone will come in with a niche product and solely cover the strata deductible coverage. You’ll have your base condo coverage and then add the extra supplemental policy. For the customer, it’s still going to increase your premiums.
Any chance for government intervention?
It’s possible, but I don’t know what that would look like. There would likely need to be an amendment to the strata act, but the money still has to come from somewhere.
In the short term, do you have any tips for stratas or homeowners dealing with this?
For stratas, you have three main players: BFL, CapriCMW, and HUB. If you’re with one, chances are you won’t do much better with the other two, but it’s worth attempting.
For condo unit owners, if you’re working with a broker, you need to trust that they know what they’re doing and that they have your best interests in mind.
What happens in a scenario where the building can’t get the water damage deductible and you trigger it?
It’s certainly an unprecedented situation. It’s possible that the strata could come to you for the full amount. You may need to set up a payment plan or even sell your property. They may need to declare bankruptcy. There will be some homeowners who, because the premiums are getting so high, won’t or can’t have insurance on their units.
How will this affect prices?
Lenders may decide not to offer mortgages to buildings who have high deductibles, and buyers will choose not to buy into those buildings. Those who understand the insurance will opt for the buildings with the lower deductible, or opt to not get into the market at all as it can be quite unpredictable. One building may have a good track record, but as soon as an incident occurs, it may skyrocket.
How do you see this all playing out?
I do think it’s all going to get worse before it gets better. I don’t know what the answer is. It’ll stop being an afterthought in the buying process; realtors will need to include subjects on the purchase to be able to speak to a broker and ensure they can get proper insurance.
Does it impact customers who don’t own property in buildings with a strata?
It’s all connected; it affects everyone. These international insurance agencies need to factor in their global risk. Even the reinsurance market, how the insurance agencies insure themselves, is rising. And when the insurance companies are needing to pay more, they pass the rising prices onto their customers of all insurance types.
Why use an insurance broker?
When the insurance shopping is done properly, it benefits the consumer. You can’t just call an insurance agency and ask for a quote – they’ll tell you to find a broker. The broker will help you find a good balance between cost and need. A lot of the online brokers are both the insurer and the broker, causing a conflict of interest that may not be best for the customer.
Are all policies created equal?
Definitely not. Most policies will read fairly similar, but you need to dig into the fine print and find the subtle differences. These can be specialized items, such as bikes or jewelry, or changing rates based on what the customer does for a living or what postal code they live in. Anyone who’s living in a condo, make sure you get the right contents limit, but don’t leave yourself exposed with the water deductible. Speak to your broker and make sure that you’re getting the right option.
Is there one thing that you wish people knew about the insurance business?
At this point when I encounter someone who lives in a condo but doesn’t have condo insurance, I tell them that we need to do it now. You’re leaving yourself exposed, and very few people can self-insure and pay out of pocket. There’s a big misconception that the strata insurance covers the owners as well.
With global climate change the insurance industry is getting trickier and risks are rising every day. What do you see in the future?
I would like to think that it’ll come to a point where it feels like fair value for the consumer, but it’s getting more and more complicated. Things are getting harder to fix or replace. For example, we have a lot of walk-in ICBC customers who aren’t happy with that company, but in BC we have a unique mix of circumstances. People like to drive here, and often very nice cars. That’s why ICBC did a full overhaul last year, and started charging those new drivers significantly more. There’s more of that on the horizon too.
Favourite neighbourhood: Kerrisdale or Hastings-Sunrise
Favourite bar or restaurant: Bao Chau on Hastings
One piece of advice you would give your 18-year-old self: Network with as many people as you can.
Book you could recommend: Sorry, I don’t read much for leisure
Something you have purchased for under $1,000 that has changed your life: Anova Sous Vide machine for home cooking
Find out more about Douglas and Reliance Insurance.