Condos navigate ‘nasty little storm’ of rising insurance

Changes introduced last year have made some headway in stabilizing market: expert

Insurance costs for condo units in Vancouver and elsewhere in B.C. have been on a rapid upward spiral over the past five years | Rob Kruyt, BIV

Tony Gioventu doesn’t like referring to surging insurance costs facing B.C. strata corporations and condo owners as a perfect storm.

“It’s a bad description,” said the executive director of the Condominium Home Owners Association of BC.

Instead, Gioventu said a series of factors – many of which are global – have been compounding since late 2019 to create what he describes as a “nasty little storm” for British Columbians.

A February report from LowestRates.ca, which allows users to compare insurance, mortgage, credit card and loan rates, revealed condo insurance premiums in B.C. increased 18% between 2019’s fourth quarter and 2020’s fourth quarter.

According to LowestRates.ca’s estimates, about half of British Columbians live in strata housing, which can cover everything from condos to townhouses (the provinces pegs it closer to just under one-third of the population).

A December 2020 BC Financial Services Authority report described the state of the strata market as “unhealthy” and cautioned that the market is not expected to improve in the near future.

“What the public needs to understand is that when they go to their insurance broker, they are not purchasing insurance through an insurance provider who is likely located in British Columbia,” Gioventu said. “They are worldwide insurance providers, so all of their risks, all their capacity and what they’re willing to accept for a liability is based upon global risks and global costs.”

Over the past few years the number insurers offering coverage has shrunk, meaning less competition in the industry.

Meanwhile, the macroeconomic impacts of the pandemic have also played a part over the past year with central banks cutting overnight rates to record lows.

“Borrowing rates were low, so were investment rates. And in a portion of reserves by the insurance companies, a portion of their profits are raised through investments,” Gioventu said.

“They’re not speculative in the same way. So even things like financial returns for the insurance industry were substantially lower than anticipated. You compound that with incredibly rapid-growing housing prices both for sale, and for construction and reconstruction, and the insurance industries themselves were taking on a lot more liability and risk.”

The added risk of earthquakes on the West Coast and the possibility of “catastrophic costs” that go with that have only exacerbated the issue, he added. 

Five years ago, a strata corporation for a highrise condo building in B.C. might be on the hook for around $500 annually per unit for insurance costs, according to Gioventu.

Nowadays, he ballparks that figure at upwards of $1,400 to $1,500 annually per unit.

“The vulnerability of free-market insurance is that it is really at the mercy of the worldwide insurance providers and the reinsurers who are essentially securing the risks that we may be exposed to.” 

But Gioventu added that there is some hope the market will stabilize.

Last year, the B.C. government introduced changes to the industry, such as requiring that brokers disclose the amount of their commissions (rates can run from 18% to 22%) to facilitate better negotiations, ending referral fees between insurance brokers and strata property managers and requiring insurers provide strata corporations with at least 45 days’ notice of material changes and renewal of policies.

In the BCFSA’s December report, it estimated it might take three to five years before premiums will adjust significantly.

“It has driven a bit of a wake-up call to our insurance industry, to government on policy,” Gioventu said. “And we’re now seeing changes in legislation, we’re seeing voluntary changes in the regulations for financial services for insurance companies. We’re seeing strata corporations being more proactive about their risk management.”

torton@biv.com

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