Insurance

May 1, 2024 Published by Manitoba Chapter - By Seth Henoch

Navigating The Dynamic Insurance Marketplace

From the CCI Manitoba Spring 2024 Condominium News and Views Magazine

Climate change and inflation affect insurance rates

This Market Insights article provides an update on an evolving insurance environment. As the year unfolds and new challenges or opportunities present themselves, we look forward to partnering with condo owners and corporations and having discussions to create risk solutions that enable you to navigate a dynamic marketplace. 

Key insurance market trends

We feel optimism and a return to increased insurer competition into the real-estate market this year. Despite concerns about the increased impact of catastrophic events, insurers and reinsurers are setting their sights on sustainable long-term growth with a focus on improving performance through careful risk selection and capacity placements.

For policyholders, this will highlight the importance of providing quality risk information, the completion of risk control recommendations, and accurate property valuations to offset inflationary increases.

2023 industry report highlights

• Global insured losses from natural catastrophic events last year surpassed US$100 billion for a fourth consecutive year.
• Last year saw many diverse global events — major earthquakes in Turkey, Syria, and Afghanistan; significant floods in Canada, the United States, China, India, Australia, Italy, and Greece; a super typhoon in Asia, wildfires in Hawaii and Canada; and drought in South America.
• Natural catastrophe and severe weather events in Canada caused more than $3.1 billion in insured damage last year.
• The rate of inflation in Canada moved up slightly to 3.4 per cent in December, and the Bank of Canada projects it will hover around 3.5 per cent until the middle of this year.

Wildfires cause insurance rates to rise

Due to climate change, the number of wildfires has been increasing, and the wildfire season has been considerably longer, as well as more devastating, over the past years. Last year, 6,551 wildfires across Canada ravaged more than 17 million acres of land. This is nine times the 10-year average. 

Wildfires have an economic impact on the communities and businesses they touch. Insurers are forced to pay large sums to indemnify those affected. Because these payments have eroded insurance companies’ profits, they take the number and severity of wildfires into consideration when they assess risk and determine rates.

Having the right insurance is critical to wildfire recovery

The most expensive wildfire event in Canadian history was the Fort McMurray fire of 2016, which cost insurers more than $5.96 billion in losses and expenses. Many people living in the community saw their livelihoods upended, their businesses affected and their homes damaged. 

The key to recovery for many was that they had sound and comprehensive insurance policies in place that literally saved the day. As a result, insurers were able to work with contractors and trades to source materials quickly on budget to rebuild their homes and businesses. By having the right coverage, home and business owners didn’t have to make up the difference in funds and therefore were able to return to their pre-fire lives as quickly — and with as little stress — as possible. 

The focus is now on B.C.’s Okanagan region, and the impact wildfires have had on its communities. In B.C., the cost to fight forest fires exploded to nearly $1 billion last year, which the province’s finance minister, Katrine Conroy, described as “$762 million higher than budget.” According to the Insurance Bureau, the Bush Creek East and McDougall Creek wildfires will collectively total $720 million in damages. This would be the most expensive insured event ever recorded in B.C. and the 10th costliest in Canada’s history. 

While the direct impact and damage of wildfires is obvious, there are also several other cumulative effects. For example, while a property might not be in the direct path of a fire, many insurers will not provide insurance if it is located within the determined range of a fire. This can impact the buyer’s ability to get competitive quotes or change providers.

Insurance rate outlook

• Underwriters will continue to ensure proper and more accurate values. The focus will be on demonstrating to their reinsurers that their portfolio data is robust, accurate and represents inflation-adjusted replacement cost valuation when deploying capacity. Quality of risk information is becoming more important. If a client has already implemented risk mitigation tools, those will need to be highlighted. 
• Close monitoring of catastrophe risks such as earthquake, flood and windstorms in high hazard zones, along with secondary perils such as severe storms, wildfires and freezing, will also be taken into consideration by underwriters. Maximum deductibles on catastrophe risks are being closely examined, which can result in more retained risk for the insured. 
• Emerging technology and innovation will continue to take shape this year. This will further allow the industry to collect and interpret data on a range of topics that will permit better, more informed decision-making and predictions of risk. This could help transform the way clients purchase insurance and how underwriters determine and calculate risk.

Your coverage should match your risk exposure

Market capacity has stabilized, driven by positive underwriting results up to this point. However, underwriters will continue to look closely at risk profiles this year. As the market continues to change and new challenges emerge, it is important for clients to start the renewal process early and provide high-quality submissions with complete information, accurate valuations, and risk control considerations. 

With inflationary increases and emerging perils, it is important to make sure you have the right coverage for your risk exposure. Brokers can help determine your needs and use their expertise to leverage your submission to insurers.

Regional legal updates

A number of developments in Alberta, British Columbia and Quebec will have an impact on the insurance industry.

BRITISH COLUMBIA - Strata Corporation Governance 

Effective Nov. 1, 2023, the minimum annual contributions to contingency reserve funds (“CRF”) in British Columbia changed for strata corporations and sections, in part as follows:

For the fiscal year following the first annual general meeting  — the very first AGM ever held — the amount of the annual contribution to the CRF must be at least 10 per cent of the total amount budgeted for the contribution to the operating fund for the 12-month period covered by that budget. 

For a fiscal year, other than the fiscal year following the first annual general meeting, the amount of the annual contribution to the CRF must be (i) determined after consideration of the most recent depreciation report and (ii) at least 10 per cent of the total amount budgeted for the contribution to the operating fund for the current fiscal year.

ALBERTA - Real Estate Council of Alberta Condominium Manager Licensing

Effective Oct. 1, 2023, condominium managers in Alberta must be licensed with the Real Estate Council of Alberta. Condominium management involves acting on behalf of a condominium corporation, performing tasks such as collecting funds, enforcing bylaws, entering contracts, and supervising employees or contractors. It is important to distinguish condominium management from property management. If a company wishes to provide both services, it must obtain separate brokerage licenses — a condominium management brokerage licence for condominium management services and a real estate brokerage license for property management services. Although two licences are required, a single corporation can operate both brokerages. 

QUEBEC - Amendments to the Charter of the French Language

On June 1, 2023, several important amendments to the Charter of the French Language regarding contracts predetermined by one party, or “contracts of adhesion,” came into effect. Many insurance policies, but not all, qualify as contracts of adhesion because they are (i) not negotiated and (ii) predetermined by one party. In general, an insurance policy and its endorsements will be considered a contract of adhesion because one party (i.e., the insurer) imposes the essential terms, conditions, and stipulations upon the other adhering party (i.e., the insured).

Subject to a number of exceptions, this reform of the charter requires that qualifying insurance policies and related documents must be “drawn up in French” and that the parties involved may be bound by a version in a language other than French only if the  insured articulates this as their express wish, after first receiving the French version(s).

Disclaimer: The information contained here is provided for the reader’s convenience as a basic starting point; it is not a substitute for getting legal advice. This information does not include information about court cases or how the courts have interpreted provisions referenced above.

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Seth Henoch has been a director of CCI Manitoba since the fall of 2022. He now serves on the Membership and the Sponsorship and AGM committees. He has been with BFL Canada as an insurance professional for the past decade and can be contacted by email at shenoch@bflcanada.ca.