VANCOUVER — There are early signs the condo insurance crisis might be easing in 2021, but it is far from stopping: Multi-unit developments are entering a second year of high insurance premiums and deductibles, creating financial hardship for many homeowners and major headaches for strata councils.
The government promised a flurry of changes last June, but some were not enacted until late in the year and many others are still under consultation this year, with no schedule for when they will come into effect. And it is still unclear how quickly these measures could reduce strata insurance prices, which started to escalate at an alarming pace in late 2019 as insurers fled B.C.’s market.
Insurance premiums at the South Surrey townhouse complex where Haven Elliott lives shot up by 180 per cent last year, and are predicted to rise an additional 70 per cent in 2021.
This year’s rate increase may not be as high as in 2020, but it continues to heap more financial burden on unit owners. Insurance costs have risen so much that they will eat up roughly half of the strata’s budget in 2021, despite the fact the 100-unit development has never had any claims.
Elliott’s strata, like many others in B.C., scrambled last year to deal with soaring insurance premiums, dipping into reserve funds to soften the financial blow for owners in the short-term. That’s not a solution strata councils can rely on in the long term if the crisis persists.
“It’s an extraordinarily challenging financial situation,” said Elliott, the strata council president. “There are many people in our strata who have young families, who have two or three children, plus their car expenses, plus their mortgage expense and activities and all the other things that they would pay, and then you had to put on them $100 a month, just on top of everything else, just to pay for [higher-priced] insurance.”
Finance Minister Selina Robinson said in a recent interview there is not one simple answer to quell the “perfect storm” that has attacked condo insurance in B.C., so the government has made a number of changes hoping to make conditions more attractive for insurers to return to this market — and to, eventually, provide some relief to unit owners.
“It’s so hard to face large increases or not even being able to find insurance at all. Certainly we have heard that very loud and clear. And that’s why we’ve been working pretty quickly and diligently to fix a problem that has been growing for a long time,” Robinson said.
The NDP, she said, has started “to chip away at the various component pieces that would help bring insurance rates down. … We’ve made a number of changes. There’s more changes coming.”
It is a crucial issue for government to address, as at least 1.5 million British Columbians — a third of the province’s population — live in strata developments. There are anecdotal signs, she said, that a moderate correction is underway, although she quickly adds the rates still need to come down much more.
“It’s taken many years to get to that spike and … it’s not something that gets fixed overnight,” she said. “I think [condo owners] should have hope. But it’s also not an easy solution.”
Some industry insiders agree the insurance premium increases in the final quarter of 2020 were less steep than in the first nine months of the year. Insurance premiums will likely still rise in 2021, but perhaps not at the same frenzied pace as a year ago.
“So the hope is that the situation is getting more into control,” said Justin Thouin, CEO of LowestRates.ca, a cost-comparison website for personal financial products. “I’d be cautiously optimistic of the Q4 results, but I wouldn’t be planning for the condo insurance rates to stay flat over the next year, because some of the underlying issues still exist.”
Indeed, the government’s insurance regulator, the B.C. Financial Services Authority, outlined several of those underlying factors in a December report, including earthquake risk, rising property values, and insurers sustaining mounting losses from claims. The BCFSA predicted “it will take time to bring the market back to a healthy state, possibly years.”
But new data by another industry watcher paints a more concerning picture for consumers hoping for a market correction. An analysis by the Eli Report, a Vancouver-based artificial intelligence platform that analyzes strata documents for real estate professionals, suggests that for many B.C. stratas, the worst of the crisis might not be over.
Eli CEO Jamie Hankinson used the company’s platform to analyze how insurance budgets at a sampling of B.C. stratas have changed. He found the trend of big premium increases appears to have continued in late 2020 and early 2021 — and, in many cases, accelerated.
As a private company and not a government agency, Eli Report does not have visibility into all stratas, but Hankinson reviewed data from 110 complexes in Metro Vancouver and Victoria, including highrises, low-rises and townhouses, a sample he said is representative of the overall building-type mix in the market.
He found stratas that adopted budgets in December and January had insurance premium budgets jump 70 per cent year-over-year, roughly double the rate of increase for the same sample group during the this time period a year earlier.
Public insurer a possibility
If the trend seen from Eli’s data continues to play out in 2021, it could force the provincial government to take more drastic action. Premier John Horgan has told his ministers of finance and housing that if “rates have not corrected by the end of 2021,” they should explore a public strata insurance option.
Think ICBC, but for condos.
“That’s an option that we’ll be looking at and absolutely monitoring through this year, because it is really hard on strata owners to sustain what has become unsustainable,” Robinson said.
She is cautious, though, because the public model “may not be the panacea.” The provincial regulator said in its December report that public insurance could improve supply and stability, but while it might initially offer lower rates, it would be “exposed to the same risks as the private sector” in the long-term.
A public model could incur losses, since private insurers say they have left the B.C. market because it is no longer profitable. “It’s absolutely a worry, and so that’s part of what we need to be exploring,” Robinson said.
Vancouver condo owner Ian Adam, who has been on his strata council for most of the past 13 years, generally doesn’t believe government should meddle in private industry. But in this case, he thinks pursuing public insurance might be the best chance to offset rising insurance rates, when little else has seemed to work.
He added, though, that waiting until the end of 2021 to begin talking about a possible public insurer seems too long for condo owners desperate for relief now.
His strata’s insurance will go up 30 per cent this year, on top of the 60 per cent hike from last year. And the water deductible for the 10-storey building, which Adam said has had no claims and recently replaced all its water pipes, has tripled to $75,000.
“It’s frustrating. You pour $100,000 into it and have zero claims,” Adam said, adding his strata has reduced other costs, such as some optional maintenance, to offset the rising price of insurance.
Housing Minister David Eby, who famously called the money-losing ICBC a financial “dumpster fire” shortly after the NDP formed its government, said recently he believes changes by his party will make it more popular with the public — and that model could be one key way to bring strata insurance rates down.
“Having a public insurer can make a really big difference, because we are really grappling with a small number, an oligopoly of strata and rental building insurance providers, that are essentially writing their own rates without any sort of competition, or very limited competition,” Eby said last month on Below the Radar, a podcast affiliated with Simon Fraser University.
“And I worry that we’re subsidizing massive losses in the United States related to wildfires and flooding through escalating rates here in British Columbia. I don’t have a lot of love for the private insurance industry,” Eby said.
“I’m a big believer in public insurance.”
Representatives of the private insurance industry, perhaps unsurprisingly, disagree.
Aaron Sutherland, a spokesman for the Insurance Bureau of Canada, said the proposition of a public strata insurance provider is “fraught with significant risk” since the government’s own regulator has said that rising claim costs led to “significant losses” for private insurers.
“Would that not simply mean the general public would be subsidizing strata insurance via a public insurer, as they have drivers in recent years with ICBC,” he said, pointing out that the auto insurer has lost $3.5 billion over the last five years, largely due to spiralling claims costs.
“The challenges we’re seeing in the strata insurance marketplace aren’t going to be solved by a public insurer, unless we address the claims issue,” Sutherland said.
The changes the B.C. government announced show they understand the need to reduce claims, Sutherland said. “I would strongly encourage them to bring forward and to enact the reforms they introduced last summer as quickly as possible.”
Still waiting for key changes
Eby’s ministry is in charge of bringing in those promised reforms. When asked for deadlines on at least six outstanding reforms, a ministry spokesperson declined to provide specifics, saying it would be after months of consultations with strata councils and the insurance industry to avoid any “adverse unintended consequences.” Those consultations are only recently underway, starting on Feb. 26.
One key promise still waiting for regulation is banning buildings from deferring depreciation reports. Others include setting clear guidelines for what strata councils are required to insure, changing the minimum contributions to reserve funds, sharing insurance information with prospective buyers, and protecting unit owners from strata council lawsuits if damage was legally their responsibility but it was through no fault of their own.
Some of the government’s promises have come to fruition already, the most important bringing an end to “best terms pricing,” a model that allowed the last insurer to join a group coverage of a building to set the insurance rate. Robinson referred to this as a “loophole” that had to be stopped.
Other actions taken by the government in late 2020 include ending referral fees between insurers and property managers, requiring brokers to disclose their commissions, and allowing stratas to use their contingency reserve fund to pay for premium increases.
Liberal MLA Todd Stone last year tabled a private member’s bill asking for additional measures to try to lower insurance rates, but it died when the provincial election was called in the fall. He argues the NDP has reacted too slowly to this issue.
“If the government wanted to make the changes necessary to drive down the soaring insurance costs, they could have done it two years ago,” he said.
“The actions that the government has taken to date have really just been tinkering around the edges. They have not addressed the challenge at hand. We are still hearing from condo owners across the province who are facing another round of renewals, and significant increases as a result.”
The solutions Stone had proposed included government no longer collecting insurance premium tax from stratas, a water damage prevention program, and allowing stratas to pursue a self-insurance model with initial funding by government.
Not enough competition
Condo owner Rick Mahler is happy best terms pricing has now been eliminated, but believes most other government promises will do little to help residents struggling to pay for these hefty premiums.
“What they should do is treat insurance companies like they do utilities, and allow them to make a reasonable profit on their investment, but have some oversight as to the amount of money that is being pulled out of the market here,” he said.
As strata council treasurer, Mahler has had a front-row seat as the insurance drama played out in his Vancouver condo tower: The building’s annual insurance premium jumped from $119,000 in 2019 to $500,000 last year and then to $386,000 for 2021 — a reduction, but he noted it is still triple the amount he paid two years ago.
And his strata’s water damage deductible jumped last year from $25,000 to $100,000. His building had no claims in 2020, and is also making upgrades to mitigate any future damage, such as replacing plastic water lines to dishwashers and toilets with braided steel lines.
Still, the financial hits continue in 2021: The flood deductible jumped from $75,000 to $500,000, and the “all risk” deductible from $10,000 to $25,000, Mahler said.
Deductibles have risen significantly in B.C. and Alberta, the two provinces with the biggest growth in condo insurance premiums in 2020, said a recent report by LowestRates.ca. Prices are also starting to creep up in Ontario.
B.C. prices did not rise as quickly in the final quarter of 2020, said Thouin, the LowestRates.ca‘s CEO, but that likely doesn’t mean they will deflate in 2021 because the problems that led to the increases still exist.
“You still have a lot of insurance companies sitting on the sidelines because they weren’t happy with their loss ratios in this space. And when you have fewer insurance companies, it means less competition. And it means higher prices onto owners,” Thouin said.
High claims from aging buildings and extreme weather events, such as floods or wildfires, also make B.C. less attractive, he said.
“The bottom line here is that a lot of companies have left the strata and condo insurance market in B.C. The only reason they’re doing that is because they’re losing money,” Thouin said. “It really is that balancing act between what they take in and what they have to pay out. And until you can get the teeter totter fair on both sides, the situation is not going to be fixed.”
But Elliott, the Surrey strata president, feels that teeter totter is weighted against owners right now.
For example, his townhouse complex’s water deductible shot up 10 times higher in 2020, even though it has never had an insurance claim and doesn’t bear the same kind of risk as a highrise, where one flood can damage several units.
He would like the government to introduce changes that will bring “substantial financial relief” to struggling condo owners.
When his strata received its massive insurance hike last year, the council voted to pay part of the bill with its reserve fund to reduce the impact on owners.
“Given the uncertainty with the COVID situation and the economy and what it was going to mean to homeowners, whether they’d have jobs to go to or whether the economy would tank, we decided to pay the premium increase … as an emergency expense,” Elliott said.
The strata likely won’t have the money to do the same thing this year, so will probably have to pass the full expense on to the owners. “This next year will be a big shock,” he predicted.