Across the country, condo insurance is making headlines: Changes to the strata insurance marketplace have premiums skyrocketing, and coverage needs rapidly changing.
The changes can be startling to unit owners, who may face big bills for policies with less coverage than previous years. Understanding the coverages you need, the coverages you have, and how condo and strata insurance policies work is crucial to ensuring you get the best policy for you.
(Note: To distinguish between the policies at play, I refer to the strata corporation insurance policy as the “strata insurance policy,” and the condo/strata unit owner’s insurance policy as the “condo policy.”)
What is a strata corporation?
The Government of BC explains strata corporations to be legal entities where the “owners of the strata lots are the members of the strata corporation.” It goes on to say that strata corporations are created to divide buildings and/or land “into separate components that are individually owned and common components owned by all of the owners.” Basically, individuals own the units, and the group of unit owners own the common areas.
In B.C., strata corporations are regulated by the Strata Property Act, which outlines strata governance, finance, and insurance (among many other things).
Strata developments may be residential, commercial, or mixed-use. The strata corporation is responsible for the maintenance of the property, and the creation of by-laws and rules that govern the strata development and owners.
Each strata corporation is led by a council of unit owners, elected by their peers at the corporation’s yearly Annual General Meeting.
What is a condo?
Merriam-Webster defines condominium as “individual ownership of a unit in a multiunit structure (such as an apartment building) or on land owned in common (such as a town house complex).”
We tend to picture apartment-style buildings when we think of condos, but townhouses and most duplexes (in B.C.) are condos as well. When the building is owned by a strata corporation, and the units are owned by individuals, it is a condo.
Houses built on bareland strata lots are not considered condos. While there is a strata corporation, the lots and houses are owned individually. Only the common property (a clubhouse, for instance, or the road) is owned by the strata. (Not sure if you have ever encountered a bareland strata? A private street in a subdivision where garbage and recycling disposal must be arranged by the residents, instead of being handled by the municipality, would be an example of one.)
While it is similar in some ways, co-op housing differs from condominiums. Co-ops are typically owned by non-profit organizations, not strata corporations, and instead of purchasing a unit in a building, members purchase shares in the organization.
All strata corporations in B.C. are required by the Strata Property Act to carry insurance. Major perils, such as fire, wind, water, and lightning, must be covered under the strata insurance policy.
A typical strata insurance policy covers damage to:
- Common property (hallways, party rooms)
- Building(s) and fixtures
- Assets of the strata (equipment, furniture)
Appliances such as fridges and dishwashers are neither considered fixtures nor furniture, and are therefore excluded under basic strata policies. Coverage for appliances may be available for an added premium.
Other coverages available to be added to strata corporation insurance policies include:
- Boiler and Machinery insurance (also called Equipment Breakdown Insurance)
- Directors and Officers insurance – this covers the liability for strata council members’ errors and omissions in the course of duty
Flood and earthquake coverage have varying levels of importance to strata properties, depending on their locations. Whereas in Kamloops, flood may be of considerable concern, in Victoria, earthquakes may be considered a bigger risk.
Strata insurance policies are also required to have $2,000,000 liability coverage, should the corporation be sued for bodily injury or property damage to a third party. This limit can be increased for added protection.
Condo Unit Owner Insurance
Condo owners are not required to have individual insurance for their units, but it is highly advisable. Many people misunderstand the strata being insured for their being personally insured.
A condo unit owner insurance policy is different from a strata insurance policy: the strata insurance policy covers the building and communally owned areas; the condo policy covers the unit owner specifically.
Some features of a condo policy are standard across all residential insurance (including homeowners and tenants policies): contents and liability coverage, as well as additional living expenses.
The bulk of the premium in a condo insurance policy is based on the amount of contents coverage provided. Determining the proper limit of coverage required for contents can be difficult, but it is critical when setting up condo insurance. The chosen contents coverage limit needs to reflect the cost to replace all items in your home at a replacement cost basis (new for old), at full price. If, like me, you are the third owner of all your furniture and appliances, you may undervalue your contents’ worth, since you paid little (or nothing) for them. But if you had to go out and replace all of them one day, with items of similar quality, you would quickly learn the grown-up lesson that things costs more than you think (like cheese).
Having personal liability coverage in place can be a vital part of financial health. If your actions (or inactions) cause property damage or bodily injury to a third party, you can be sued for damages – possibly in the range of millions of dollars – and accumulate huge legal fees. Personal liability is included in home, condo and tenant insurance policies; a $2,000,000 limit for personal liability insurance is standard, but higher limits are usually available for purchase as well. While the strata insurance policy will cover the strata corporation’s liability, it does not provide personal liability coverage to the unit owners – so, if you, as an individual, are named in a lawsuit, you have no coverage through the strata insurance policy.
Additional Living Expenses coverage is automatically included in condo insurance policies to cover expenses incurred when damage makes a unit uninhabitable (hotel charges, for example). The damage to the unit must be caused by a peril covered under the policy. If you choose not to add flood coverage to your policy, and your unit is rendered uninhabitable by a flood, you would not have access to additional living expenses coverage.
Like flood, other coverages can be added to your condo insurance policy:
- Identity Theft – this would cover costs associated with reestablishing your credit and identity if it were stolen; it usually includes legal fees and lost wages, among other things
- Often sold as a package with flood coverage, sewer back-up damage is an important coverage for all home and condo owners – no matter what floor you live on, the pipes can back-up (and when they do, it is never pleasant)
Condo unit owners need more than just these coverages, though. While condo policies cover the unit owner and their belongings, they cover where the strata insurance policy doesn’t.
If there is damage to the strata property (the building or communal areas):
- The costs to make repairs can be assessed to the unit owners. These are called loss assessments, and condo policies automatically include coverage for them. Depending on the insurance company, the amount of coverage for loss assessments may be a set amount, or may be based off the amount of contents coverage selected.
- A claim may be made under the strata insurance policy. Since the deductibles on strata insurance policies are often quite high (sometimes in the tens- or hundreds-of-thousands of dollars), the strata corporation can assess the deductible to the unit owners. Often, if the damage originates from one unit – say an overflowing bathtub causes water to leak into a few units below it – the entire deductible will be assessed to the owner of the unit that is “responsible” for the damage, instead of being spread amongst all unit owners. Coverage for deductible assessments is important to have. To ensure you get the proper limit of coverage for this, familiarize yourself with your strata insurance policy’s deductibles. Only a small amount of coverage is included in most condo insurance policies, but the limit of insurance can be increased for an additional charge.
- The strata insurance policy may not provide coverage if the amount of damage is under the strata insurance policy’s deductible, or the strata policy is not in effect when the damage is caused. Unit Additional Protection, also called Contingent Coverage, protects unit owners if the strata insurance policy will not respond to damage to their unit.
- The strata insurance policy will only repair to the buildings original quality. If you have made any upgrades to your unit, like replacing carpet with hardwood, you need Improvements and Betterments. Some coverage for upgrades is automatically included in condo policies, but you may need to purchase higher limits if you, or any previous owners of your unit, significantly improved the unit (floors, cabinets, counters etc.).
Note: The damage type (e.g. fire, sewer back-up, earthquake), must be covered under the condo unit owner’s insurance policy, in order to have access to these coverages. So, for example, if your condo insurance policy does not include earthquake coverage, you will not have coverage for any earthquake-related strata assessments.
What’s changing and why?
In the past few months, the strata insurance landscape has changed dramatically. The most obvious change is to the rates, which are sometimes doubling or tripling.
Less obvious, but crucial to know, is the deductibles that are increasing alongside the rates. Deductibles for water damage, in particular, are increasing on strata insurance policies to as high as half a million dollars. (Remember that if there is damage to the building or communal areas that originates from your unit, you could be assessed the entire strata insurance policy deductible.) This is why it is vital to ensure your condo insurance policy includes enough Deductible Assessments coverage – every insurance company handles condo coverages differently, so talk to your broker to make sure you have the best policy for you.
Strata insurance premiums and deductibles are increasing for the same reason – claims. As the number of strata insurance claims rises, so too do premiums and deductibles: premiums increase so that the insurance company is collecting enough money to pay future claims; and deductibles increase so that the number of claims made is fewer, and the amount paid out by the insurance company is less.
Globally, claims numbers are rising as the climate changes, and we see more frequent or larger weather-related events (floods, wildfires, hurricanes). In BC, where an estimated one third of the population resides in a strata property, buildings are aging, making them more susceptible to damage if upgrades are not made. In a single-family home, a water leak impacts one family and one unit, but a water leak in an apartment-style condo can impact dozens of families and units, often making repairs more expensive.
All this leads to what we call a “hard market,” where insurance companies become stricter with their expectations, limit coverage, and increase premiums, to help reduce the number of claims made.
Fortunately, the insurance market is cyclical – after a few years of high premiums and strict underwriting requirements, things tend to balance out, and return to normal.
What should condo-owners do?
In the meantime, the most important thing you can do as a condo owner is seek to understand the insurance policies covering the building and you.
Gather your insurance policy documents – get a copy of the strata insurance policy from the council, and dig out your condo insurance policy – and find a broker you trust to explain the coverages you have. Ask your broker to identify any gaps in the policies (e.g. missing earthquake coverage), and any gaps between the policies (e.g. the strata insurance policy has a $50,000 water damage deductible, and your condo insurance policy has $25,000 Deductible Assessment coverage).
Once you know what’s covered, work with your strata council to minimize the likelihood of damage to or within the building. It may mean voting to replace old pipes sooner than expected, installing water sensors in each unit, updating by-laws, or arranging a time to have your insurance broker/risk manager come in and speak to your fellow condo owners about everyday ways to mitigate the risk of damage.
If you do not have a condo unit owner insurance policy, you can get a quote online here.
The Insurance Bureau of Canada has a basic overview of condo and strata insurance in Canada.
The Insurance Brokers Association of B.C. has an overview specially about B.C. condos.
The Strata Property Act is online, if you are interested in some light legal reading.
There are a number of resource available through the Condominium Home Owners Association of BC.
Morgan Thomas, BA (Dtn.)
Project Management & Customer Experience Coordinator