Condominium Insurance: Does Your Condo Look Good to Insurers?
From the CCI Review 2021/2022-3 March 2022 issue of the CCI London Chapter
As a condominium director, owner or property manager, it is likely you have been dealing with an increase in insurance premiums of late. Ask any insurance professional and they will tell you that this market is the toughest they have seen. Residential and commercial property policies are seeing the biggest increases in this ‘hard market’. Condominiums across the country have experienced increases year over year in the 10-50% range, and some even as high as 300%.
When the market has seen an increase in claims paid and a decrease in overall profit, insurance companies will set stricter requirements to obtain insurance, and premiums will be more expensive. As we see the frequency of claims rise due to water damage to property, slip & fall lawsuits and the greater incidence and intensity of severe weather events, insurance companies are required to tighten up their bottom line. They achieve this by increasing rates and reducing capacity. Insurance for condominium corporations has not been profitable for insurance companies for many years causing insurers to limit their exposure (underwriting fewer policies) and/or charge a much higher rate.
This challenging time provides brokers with the opportunity to really show their condominium clients how to take control over their insurance program. By encouraging our clients to make an investment in a long-term plan to reduce their overall risk and put policies and procedures in place to mitigate future losses, our clients recognize the fact that they can take an active role throughout the process.
How can a Condominium Corporation make itself a better risk to the insurance companies?
1. Start the renewal process well in advance
The process doesn’t start at the renewal date. Starting the renewal review well in advance of policy expiry allows your broker to assist with painting the best possible picture of how the Corporation is working to reduce the likelihood of future losses and make itself appear as a better risk to insurance companies. This can be done by implementing routine programs to check sump pumps, clean dryer vents & ducts, clean plumbing stacks, check/replace smoke detectors, etc. These items may not be the responsibility of the Corporation to maintain, but it is in the Corporation’s best interest to ensure they are all working properly to avoid a claim.
2. Improve the Corporation’s loss ratio
The loss ratio is the amount an insurance company incurs in paid claims as a percentage of the premiums earned on a particular policy. Insurance companies want to know what claims have been made by the Corporation within the last 3-5 years. Corporations with more claims will have a higher loss ratio and will see an increase in premium as a result. In today’s market, making a claim for anything less than 2-3 times the deductible amount is not recommended. Insurance is meant to pay for major losses, not smaller or more frequent events. Although it is not ideal for the Corporation, it is wise to self-insure (paying for smaller losses out of pocket) whenever possible.
3. Increase deductible amounts
Another way of limiting the number of claims made on a policy is to increase the deductible amounts. Having a higher deductible can bring premiums down and allow for smaller losses to fall below the deductible and therefore fewer to be paid out by the insurer. Some insurers are requiring deductibles be increased for this reason.
4. Review the standard unit by-law
Removing those items from the standard unit by-law that are most often damaged and irreparable due to a water loss, including finishes such as flooring, kitchen cabinetry and countertops can assist in bringing property rates down. Corporations with a “bare bones” style standard unit by-law to one that includes only the unit shell should have a much lower rate for property insurance. The less the Corporation is responsible to repair in the event of an insured loss, the less the premium will be for that coverage, leaving the majority of the costs to fall on the unit owner’s insurer.
5. Get an updated insurance appraisal
Your broker has likely recommended an appraisal be completed for the property every 3 to 5 years. The purpose of an appraisal is to be certain the property is insured to its full replacement cost value. Concerns about the costs associated with an appraisal are common, but the peace of mind in knowing the property is appropriately insured is invaluable. Should the building(s) be severely damaged or destroyed, the appraisal serves to resolve disagreement between the insurance company and the corporation as to what the total value of the property was prior to the loss.
6. Complete regular inspections of the property
An inspection today will identify risks that may not have been visible at this time last year or even last season. Regular inspections assist your broker in making a case to the insurance company that the corporation’s risks are reduced and therefore premiums should be lowered.
7. Implement a claims procedure
Does the corporation have a plan in place in the event of a loss? Is there a preferred disaster restoration company prepared to attend the property with knowledge of that particular property? Any preparation done prior to a loss can improve response time and mitigate further damage. Speak to the Corporation’s broker about actual loss scenarios and how the Corporation would respond should those scenarios take place on your property.
8. Document updates within the units
Even though certain components within the unit such as heating systems, electrical and plumbing are often not the Corporation’s responsibility to maintain, insurance companies have begun to look for proof of updates to these systems in older buildings (those reaching or past 40 years of age). Requesting details of this information from unit owners and keeping record of these updates will assist the Corporation when the time comes to provide it to the insurer.
9. Work with a broker you trust
Market fluctuations are cyclical. There will be a time in the not so distant future when the current challenges we are facing will be lessened. But for now, with the increases in rates and the decline in insurance companies wanting to write condominium policies, it is in every Condominium Corporation’s best interest to leverage the knowledge and experience of their broker. A cheaper quote may be good for the Corporation’s budget numbers, but a quality broker will provide the support needed to better navigate through this difficult market and provide better results over time.
Tricia Baratta (RIBO Ont) is an Account Executive—Commercial Insurance, Gallagher Canada.
Her span of training has been extensive in condominiums, including administrative services, former condominium manager, restoration specialist and more.
Tricia was first elected to the CCI Board in 2015. She was the co-chair of the Education Committee from 2017-2021.
She has provided her expertise as an instructor both locally and provincially and has provided valuable contributions as a writer.
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