B.C. strata insurance market unhealthy, report finds

(NEWS 1130) — Strata insurance premiums rose approximately 40 per cent across the province on a year-over-year basis, with deductibles experiencing up to triple-digit increases over the same period, a three-month investigation by the BC Financial Services Authority has found.

The BCFSA completed the report at the request of the provincial government. The interim findings provide a data-driven picture of increasing strata insurance costs, a result of local and global factors.

Evidence was found that showed the industry has been incurring losses over the past three years from mostly minor claims — particularly those resulting from water damage — due to poor building maintenance and initial construction quality issues.

Data also suggests that strata insurance has also been used to fill in the gaps left by other forms of protection, such as home warranties for new buildings and maintenance programs for older buildings.

READ ALSO: Governments should protect condo owners from skyrocketing insurance costs: advocates

As well, the report found the exposure insurers have to earthquake risk in B.C. compared to other markets prompted many to reduce the amount of insurance they offer, creating pricing pressures.

“Our interim findings released today present a picture of an “unhealthy” strata insurance market in British Columbia. That is, a market that fails to meet the goals of sustainability, affordability and availability,” said Blair Morrison, chief executive officer, BCFSA.

“Despite large increases already being felt, the situation has not yet stabilized, meaning many stratas, particularly those in buildings considered to be higher risk by insurers, can expect to face further pricing pressures as well as the risk of not being able to obtain full strata property insurance coverage.”

The BCFSA is the regulator responsible for safeguarding confidence and stability in the province’s financial sector by protecting consumers from undue loss and unfair market conduct.

The province is expected to speak to stakeholders this summer to get a better idea of what factors determine cost and availability of strata insurance in B.C.

BCFSA will be seeking more information regarding a practice known as “best terms pricing,” which may have also driven up premiums

“When constructing a strata policy, a broker uses multiple bids from different insurers for the same property in order to achieve 100 per cent coverage,” says the report. “The price of the coverage is then based on the highest bid amount of the insurers participating.”

BCFSA will be launching an engagement exercise with industry stakeholders in coming weeks to explore and further validate its interim findings.

“The underlying factors contributing to B.C.’s unhealthy strata insurance market are complex and do not present easy solutions”, said Frank Chong, BCFSA vice-president.

“Everyone involved in the market has a role to play to balance availability and affordability of insurance going forward.”

Condo owners in B.C. had been calling for government intervention to curb rising insurance premiums.