Strata Insurance Update: August 2020

In January, we posted about the ever-changing condo insurance marketplace, outlining the basics of strata insurance and some of the challenges being faced by strata corporations when renewing their insurance policies.

By Royal Assent on August 14th, 2002, the BC Legislative Assembly passed changes to the Municipal Affairs and Housing Statutes Act affecting strata insurance. Some changes came into effect as of August 14th, and others will be effective at later dates.

Effective immediately, strata corporations are required to advise strata unit owners about any changes to the strata insurance coverage as soon as possible. Changes to the strata corporation insurance policy coverages could be anything from increased deductibles, to reduced coverage for certain types of damage. Whatever the change is, if it impacts the amount of availability of coverage under the strata insurance policy, the unit owners must be informed right away.

Also effective immediately is the ability of strata corporations to pay for the insurance required under the Strata Property Act using their operating or contingency reserve funds. This can be done without a vote by the owners if it is urgently needed in order to obtain the insurance.

The changes to come in the following months include:

  • Setting clear guidelines surrounding the requirements of strata insurance, to help strata councils make informed decisions about their policies;
  • Identifying when, if ever, strata corporations are not required to purchased full replacement cost coverage;
  • Strengthening depreciation reporting requirements, and limiting a strata corporation’s ability to avoid completing depreciation reports – currently, depreciation reports (which project the common property and assets that will require maintenance, repair and replacement over the next 30 years) must be renewed every three years, but this requirement can be waived by a 3/4 vote;
  • Protecting strata unit owners from lawsuits from strata corporations when the unit owner is found legally responsible for damage, but it occurred through no fault of the unit owner;
  • Change unit owners’ minimum required contributions to the strata corporation’s contingency reserve fund; and
  • Prohibiting the payment of referral fees between strata property managers and insurers and brokers (this was not a standard practice for property managers, but was occurring with some).

Additionally, the BC Financial Services Authority is conducting research into the BC strata insurance market, and will be releasing a final report this fall, which may result in further legislation.

The interim report by the BC Financial Services Authority, released in June, published the following findings:

  • The average premium increase for strata insurance polices over the past year was approximately 40% in BC (50% in Metro Vancouver); though, the majority of strata properties saw an increase of less than 30% over the previous year.
  • Deductibles have “increased up to triple-digits” in the past year.
  • Premiums for strata insurance are expected to continue to rise, and the pressure of obtaining full, or sometimes any, coverage for high risk buildings remains.
  • Poor building maintenance practices and construction quality issues contribute to insurers paying minor claims, often for water damage. (Since 2017, water damage from plumbing failures and leaks made up approximately 46% of strata insurance policy claims.)
  • Newer buildings (built within the past five years) tend to have higher average claims payouts than older ones, making them less desirable to insure (along with those with poor maintenance histories, and buildings that are less fire resistive).
  • Increasing replacement costs and changes to building materials have also strained insurer profitability.
  • Insurers are limiting earthquake coverage for strata corporation insurance policies in BC due to the high risk of earthquake, and the probability of catastrophic damage should a large earthquake occur.
  • Insurance companies have a limited capacity for strata insurance and are not expected to be able to meet future demands (as new strata buildings continue to be built).
  • The strata insurance market in BC currently does not “meet the goals of sustainability, affordability and availability.”
  • Changes to the way strata insurance policies are constructed, and to reduce insurance companies’ exposure to earthquake risk in BC, may be needed in order to improve the sustainability, affordability, and availability of strata insurance.

A list of changes contained in Bill 14 – 2020: Municipal Affairs and Housing Statutes Amendment Act can be found on the Government of BC website, and full details are available on the BC Legislative Assembly website.

More changes are likely to follow over the next several months, as insurers, brokers, strata corporations, and the provincial government work to make strata insurance more sustainable and affordable.

For the most relevant and up-to-date information on strata insurance, contact your strata insurance broker.