My inbox has been flooded with questions surrounding the condo insurance conundrum that is making headlines across BC. In case you weren’t already aware, insurance premiums are skyrocketing across the province, catching many strata buildings completely blindsided.
Make no mistake, it is a real problem, although the media does a fantastic job in highlighting extreme cases, making the situation look apocalyptic. Check out some of these headlines.
Here are a few recent cases of insurance mayhem.
As per The Province Newspaper, When residents of Anchor Pointe in New Westminster gathered for the strata’s annual meeting in December, they were stunned to learn their building’s insurance premiums were expected to increase by 40 per cent for 2020.
“It was a total shock to everybody,” said strata president Bruce Campbell.
Unfortunately for the 30-year-old tower’s residents, things were about to get worse.
The strata had budgeted for the 110-unit building’s insurance premium to increase by about 40 per cent for 2020 — to $95,000 for the year, up from about $70,000 — but when January rolled round, the strata council learned it would not be close to sufficient. Instead, Campbell said, the premium would be $259,000 this year — more than 3.5 times the cost last year.
Campbell had expected strata fees for his two-bedroom unit would be around $480 a month, including building insurance with this year’s anticipated 40 per cent increase. But now, the monthly costs for his unit will need to rise by about $150, to $630.
And here’s one from CTV News
A representative of a condo owners’ association says recent changes to insurance rates mean that not only are buildings having to pay more for coverage – some are being denied altogether.
“This is something no one had foreseen,” said Tony Gioventu, executive director of the Condominium and Homeowners Association of B.C. “This will collapse our real estate industry because no one will be able to get mortgages and there will be no buyers and no sellers,” Gioventu said.
Gioventu knows of a handful of buildings currently unable to get insurance, and said there could be more out there. “We came across a development last week where the policy has increased from $300,000 to $1.2 million,” added Gioventu.
Why is this Happening?
Insurance companies are blaming extreme weather events, however that really doesn’t tell the whole story. Rising condo building valuations and the cost of repair is increasing the risk and costs to condo insurers. Meanwhile, investment returns for insurance companies have taken a beating in this low interest rate environment. Remember, insurers collect premiums and invest those in financial markets to increase returns. Further, According to the Insurance Bureau of Canada, years ago insurers would pay out about $500 million annually in Canada. In 2018 they paid out about $2 billion and that risk is being passed around.
So what does this all mean?
Insurance premiums are going up, and this will be reflected in strata maintenance fees. Not only that, but deductibles are also expected to increase anywhere from $100,000 to $500,000 and beyond. This puts the individual owners at risk.
These are ultimately added carrying costs and risks that landlords will have a tough time passing on to tenants, especially since rent increases are capped each year.
One would assume this should impact the demand for condos, however, as of right now markets are completely ignoring the news. Many Condos are fetching multiple offers and prices are inching higher. Supply has dwindled to just 3 months of inventory for sale. Will the market finally catch on? Will the BC Government be forced to intervene?