Condo insurance deductibles are increasing — here's how it could affect owners

$274,000. Let that number sink in for a second.

That’s how much the annual insurance premium for a 181-unit condo building in Langley, B.C., increased in December 2019, more than tripling from $97,000 a year to $371,000.

OK. $245,000. Now let that number sink in. That’s how much the same condo building’s insurance deductible increased, from $5,000 to $250,000. 

Hundreds of B.C. stratas have been hit with massive insurance hikes in the last two years. As a condo resident, you’re probably wondering how this will affect your personal condo insurance coverage. Let’s use the following example. Say your condo building has a $500,000 insurance deductible, and makes a water damage claim with its insurance provider. However, the damage is found to have originated in your unit. You could face what’s known as a master policy deductible assessment. In other words, the loss comes out of  your personal insurance policy. If that happens, but your personal policy only covers such assessments up to $50,000, you could be responsible for the remaining $450,000 yourself.

The biggest concern and point of confusion is how this will affect owners if the loss is found to have originated in their unit

For the last year, home insurance companies in B.C. have been grappling with how to explain this to condo owners, and how to find a condo insurance policy with enough coverage to protect them against these assessments. The trouble is, policy options are limited. 

Most condo policies don’t cover high loss assessment amounts

“Since late 2019, we've been fielding a whole lot of calls from condo unit owners,” says Stefan Tirschler, product and underwriting manager at Square One Insurance Services Inc. in Vancouver.

“Even today, a year later, those calls continue to come in, as new condo owners buy into the market for the first time and find themselves needing to deal with the issue,” he says. “The changes that occurred on the commercial master policy side of the industry seemed to happen over a very short period of time. The visibility of this spiked all at once, right at the tail end of 2019 and heading into 2020.”

Reasons for the steep increases facing condo corporations include more expensive building materials, extreme weather events, fewer insurance companies in the area and increased costs for the ones that remain.

While condo corporations are bearing the brunt of these hikes in deductibles and premiums, condo owners are facing the trickle-down effect. Tirschler says the biggest concern and point of confusion is how this will affect owners if the loss is found to have originated in their unit.

“The question we’re getting from condo unit owners, and rightly so, is ‘Am I covered if this  $50,000 water damage deductible is assessed against my unit?’” he says. “That’s the sudden big question they have now because that deductible didn't exist before.”

The highest water damage deductible for condo buildings that Tirschler has seen in B.C. is a whopping $750,000.  

Brokers need to be prepared to communicate these increases to customers and educate them about the kind of coverage they’ll need

“We know what kind of coverage the customer may need but it may not be widely available in the market at this point,” says Tirschler. “Not all personal insurance providers will offer a $150,000 to $250,000 amount of coverage strictly for the assessment of a master policy deductible. In many cases, the limits that are available for that are only a fraction of the amount that could potentially be assessed.”

As of today, Tirschler says, “Square One is one of the few remaining providers to go that high.”

Government and industry action over sky-high deductibles 

In a bid to figure out a solution to this crisis, the Insurance Bureau of Canada created a task force last year to engage insurers, governments and other stakeholders in combating the issue. The B.C. government also took some initial measures last summer with the tabling of Bill 14, which would ensure clearer guidelines are spelled out for both strata corporations and individual unit owners on what they are responsible for insuring, and — perhaps most importantly — that a cap be placed on the amount a strata can assess against an individual unit. Alberta implemented such a cap last year, where the maximum deductible amount a condo unit owner can be held liable for is $50,000.

In the meantime, however, brokers need to be prepared to communicate these increases to customers and educate them about the kind of coverage they’ll need. 

“I do think, on the personal lines side, we know how to deal with this,” says Tirschler. “We are watching this closely and we are responding to it.”

I am optimistic that solutions will come to market. When significant events come along. . . the industry is responsive

While these increases appear to be largely concentrated to Alberta and B.C., particularly in the Lower Mainland region that includes Metro Vancouver, we could see rising condo insurance deductibles creep across Canada into other provinces. Personal insurance companies will need to go into development mode and figure out a way to offer policies that protect condo owners against these deductible assessments.

“Given the history that I’ve observed, I am optimistic that solutions will come to market,” says Tirschler. “When significant events come along, whether it’s a change in the market that changes what customers need, or whether it's a large loss event that changes what customers want, the industry is responsive to things like this.”

Tirschler recalls the 2013 Alberta floods and how, at the time, overland flood insurance was practically nowhere to be found. 

“That event got people thinking about flood insurance, and interested in buying it, and the industry responded quickly,” he says. “Now the vast majority of Canadians are able to obtain strong and affordable overland flood insurance coverage, which nobody would have expected up to 2013.”

In response to the strata insurance crunch, Square One introduced Condo Owner’s Protection, which allows unit owners to purchase up to $250,000 in coverage against master policy deductibles. That’s a good start, but it will inevitably take time for other insurers to follow suit and for the government to legislate meaningful measures.

“We’re looking at an issue that seems to have happened fairly recently,” Tirschler says. “The development cycle has a bit of a longer lead time in order to deal with what could be, in an individual customer’s circumstance, a five-fold increase in the amount of coverage they need for something that used to be very stable.”