Insurance

August 4, 2026 Published by Toronto and Area Chapter - By Carly Rowden

The Ontario Insurance Gap: Why Condo Replacement Costs Keep Rising — Even When Property Values Don’t

From the Summer 2026 issue of CCI Toronto Condovoice Magazine.

For many condominium boards and managers across Ontario, the past several years may have brought difficult conversations around insurance renewals and valuation increases. One question continues to surface repeatedly:

“If condo market values are softening, why do replacement costs keep increasing?”

It is a fair question – and one that highlights a common misunderstanding about how condominium insurance valuations work.

Market value and replacement cost are two entirely different measurements. Resale values may fluctuate with interest rates, housing demand, or economic conditions, and represent what a unit will sell for. Insurance appraisal is based on replacement cost that is driven by today's construction realities: labour, materials, tariffs, building code requirements, logistics, and the increasing complexity of rebuilding in dense urban environments.

Understanding that distinction is critical because it directly affects whether a condominium corporation is adequately insured in the event of a total loss.

Understanding Replacement Cost

An insurance appraisal estimates the total cost to rebuild a property from the ground up today, using current materials, labour, and building standards. That value is then used by insurance brokers to help establish the corporation’s insurance policy limit.

Importantly, this has little correlation to market value or what units in the building might sell for on the resale market.

Resale market value reflects supply, demand, financing conditions, location and buyer sentiment in terms of what end users are willing to actually pay for a condo unit. Replacement cost reflects something entirely different: what it would cost to physically reconstruct the building today if there was a total loss.

If the price of a material changes because of tariffs or there is a change in a building code, these could have an upward push on reconstruction value and therefore the property's insurance appraisal value. This could be happening at a time when demand for units is going down, which leads to an environment with declining market values and a push upwards in replacement cost values.

Without active appraisals providing accurate annual values, properties are at risk of being underinsured, something we call the insurance gap – the difference between what a property is insured for and what its true replacement cost value is.

Why Replacement Costs Continue to Rise

Across Canada, replacement cost values have increased significantly over the past decade, outpacing general inflation, with much of the heightened inflation pushing up materials and labour right after the pandemic.

Over the past decade, general Consumer Price Index inflation has increased by roughly 29– 30%. In contrast, construction costs for multiresidential buildings in the GTA have risen significantly faster, increasing by approximately 83% from 2017 to 2026, based on Statistics Canada’s Building Construction Price Index. This divergence highlights a persistent gap between general inflation and construction-specific cost escalation.

Several factors continue to drive this trend.

1. Construction Costs Are Outpacing General Inflation

General inflation is only one piece of the puzzle. Construction inflation operates within its own ecosystem and is influenced by factors that do not always align with broader economic trends.

Material pricing volatility, transportation costs, fuel pricing, supply chain disruption, and labour shortages all contribute to reconstruction cost escalation. Even as some pandemic-era spikes have stabilized, costs remain elevated compared to historical norms.

For condominium corporations, this means replacement costs can continue increasing even during periods of declining resale prices for condominium units.

2. Rebuilding in the GTA Is Increasingly Complex

The city of Toronto has seen steady declines in condo prices; The Toronto Region Real Estate Board has reported that average condominium selling prices are trending lower year over year — down by 9.1% in Q1 2026 compared to Q1 2025. At the same time the cost to construct has been increasing. The price of the materials to build is still increasing, albeit at a slower rate than in previous years. There has also been upward pressure on certain material prices as well due to Tariffs and high fuel prices.

Urban areas like Toronto still continue to face complicated build sites, which can often push up prices as several factors are included:

• Limited site access
• Traffic and pedestrian management
• Right staging areas
• Municipal permitting challenges
• Higher subcontractor demand

These logistical realities increase both project timelines and overall reconstruction costs.

Many condominium corporations are surprised to learn how much these urban constraints can influence replacement values – particularly for high-rise and mixed-use buildings.

3. Building Code Changes Add Additional Costs

Another important consideration is evolving building code requirements.

When a property is rebuilt following a major loss, reconstruction must comply with current building standards – not necessarily the standards that existed when the building was originally constructed.

Over time, changes to fire protection systems, accessibility requirements, energy efficiency standards, environmental regulations, and life safety provisions can add significant costs to a rebuild.

As a result, even if the building itself has not changed substantially, the cost to reconstruct it to today’s standards often has.

The Real Issue: Timing, Risk & Fiduciary Duty

One of the most important — and often overlooked — realities surrounding insurance appraisals is that the issue is not always the increase itself. More often, the challenge lies in when and how reconstruction cost changes are being captured over time.

A common pattern we see looks something like this:

• A condominium corporation completes an insurance appraisal
• Several years pass without updates — sometimes 3, 5, or even 7 years
• Construction costs continue rising gradually in the background
• A new appraisal is finally completed
• The corporation experiences one significant valuation correction

From the Board’s perspective, the increase can feel sudden and alarming. In reality, the adjustment is often the result of several years of accumulated construction cost escalation finally being reflected all at once.

This timing issue matters because one of the most important responsibilities of a condominium corporation is ensuring its insurance coverage reasonably reflects current reconstruction values. The purpose of an insurance appraisal is not simply to explain premium increases — it is to support informed decision-making and help boards fulfill their fiduciary duty to protect the corporation and its owners from unnecessary financial exposure.

Section 99 of the Ontario Condominium Act states that condominium corporations are required to obtain and maintain insurance coverage for damage to units and common elements caused by major perils, and that the coverage must reflect the replacement cost of the property. In many cases, the corporation’s declaration will also include provisions requiring insurance appraisals to be completed every three years or reviewed annually prior to policy renewal.

When valuations are not reviewed regularly, corporations may unknowingly spend years in an underinsured position. If a catastrophic loss were to occur during that period and policy limits proved inadequate, the financial consequences for both the corporation and unit owners could be substantial.

Significant valuation corrections can also create challenges for boards, property managers, and brokers who are trying to manage budgets, communicate changes to owners, and navigate increasingly difficult insurance renewals.

Regular appraisals and ongoing valuation monitoring help corporations maintain insurance limits that are more aligned with current reconstruction realities. More importantly, they support stronger risk management practices, greater confidence in coverage adequacy, and a more proactive approach to fulfilling the corporation’s obligation to protect its assets and owners if the unexpected occurs.

Why Proactive Valuation Practices Matter

The good news is that large, disruptive correction increases are often avoidable.

The most effective approach is proactive valuation management – treating insurance appraisals as an ongoing process rather than a task completed every several years.

When valuation updates occur regularly and align closely with renewal cycles, increases tend to become:

• Smaller
• More predictable
• Easier to budget for
• Easier to communicate to owners

These updates help ensure insurance values accurately reflect today’s reconstruction environment rather than outdated cost conditions from years prior.

Structured approaches, such as three-year full appraisal cycles supplemented by annual updates, can help condominium corporations avoid significant catch-up adjustments later on.

Consistency is key.

Organization and Communication Are Equally Important

One of the biggest operational challenges many corporations still face is timing.

Appraisals are delayed, renewal dates creep up unexpectedly, or properties are missed simply because everyone is busy.

The most successful valuation strategies tend to involve strong coordination between condo managers, boards, brokers, and appraisal consultants.

Simple organizational practices can make a significant difference, including:

• Diarizing appraisal schedules well in advance
• Aligning valuation reviews with insurance renewal dates
• Keeping property lists and records organized ahead of time
• Planning updated proactively rather than reactively

These steps help reduce rushed renewals, avoid missed updates, and support more stable long-term valuation management.

Looking Ahead

Reconstruction costs will always change. That is not unique to Ontario, nor is it something condominium corporations can control.

What corporations can control is how consistently those changes are monitored and captured over time.

When valuations are managed proactively, large and frustrating jumps become far more manageable. More importantly, corporations gain greater confidence that they are adequately protected if a catastrophic loss occurs.

At the end of the day, accurate replacement cost valuations are about far more than numbers in a report. They are about protecting communities, safeguarding owners, and helping condominium boards fulfill their responsibility to the people they represent.

---

Carly Rowden, Business Development Associate, Normac