NOTE: This column is not a substitute for professional insurance advice. Please speak with an insurance advisor to discuss your situation and options. Always make sure you have a current home owner, landlord or tenant insurance policy in place.
What is Strata Insurance?
As a homeowner, landlord or renter, you need to have home insurance in place to protect you in case of accidents, unexpected issues, theft, etc. Every condo building also has a “Strata Insurance Policy” that covers the owners in case of extensive damage that extends into multiple units and common Strata property.
Your home insurance policy should cover a portion of the Strata Insurance Deductibles in case of an extensive issue originating from your unit. For example, if your washing machine breaks and ends up flooding multiple units below you, you will have to pay the deductible on your home insurance policy (typically a few hundred dollars), then your home insurance policy should kick in to cover the Strata Insurance deductible (typically in the tens of thousands of dollars), then the Strata Insurance will cover the cost of the damage. So, for example, $50,000 in damage may only cost you a few hundred dollars if you’re properly insured.
However! Strata Insurance deductibles have increased significantly in recent months leading to water damage deductibles increasing significantly from $10,000, some up to $750,000! For example, this would mean that any damage up to $750,000 would be the responsibility of the homeowner of the unit where the damage originated to pay for. You can imagine that if your personal insurance policy has to cover $750,000 worth of damage then your home insurance policy is going to be really expensive! Keep in mind a $750,000 Strata Deductible is an extreme example that isn’t common. My own building recently renewed our insurance and our water damage deductible is still $25,000, so it’s not all doom and gloom. A $100k deductible is considered normal these days. A $250k deductible is high, but you can likely still find coverage. Anything above $250k should be avoided. I find high rise towers where one issue can damage many units at once and buildings with a lot of previous issues (often buildings that are significantly tenant occupied) have seen the highest increases. For example, if you cause $120,000 worth of damage in your building and your personal policy only covers $25,000 worth of water damage, but your Strata Deductible is $100,000, then you’ll have to pay the $75,000 difference! Make sure your home insurance policy covers ALL the Strata Insurance Deductibles.
The changes to Strata Insurance policies weren’t limited to water damage. Insurance companies are charging more for all deductibles as well as the and for the cost of re-building in case of total damage. This means that the cost of the overall policy has increased for condo owners, which means buildings need to budget more for yearly Strata Insurance, which means your strata fees will increase to cover the cost (this could be hundreds of dollars per month for each unit).
In very extreme cases, some buildings were not able to secure Strata Insurance Policies due to extensive issues. Have a look at this article by CBC describing this issue: https://www.cbc.ca/news/canada/british-columbia/condo-buying-mark-ting-1.5456945.
Why has Strata Insurance Increased Recently?
Strata Insurance has increased recently due to factors that have increased due to a myriad of factors, including:
- Increase in the Number of Claims: If your building has a history of water damage claims due to poor system design leading to failures, unfortunate resident activities, aging building systems, or just poor maintenance records, then your Strata Insurance will likely increase significantly due to the high probability of another incident.
- Re-Build Costs have Increased: Strata Insurance costs are based on the assumed value of the condo and the cost to re-build in case of complete damage. BC property values and construction costs have increased significantly, which means the cost of re-building has increased, which means your policy costs have increased.
- Increase in Global Emergencies: The more earthquake and climate related emergencies that we see around the world, the more our Insurance companies are preparing for the possibility of a major event at home, increasing your costs due to increased risk.
- Smaller Insurance Companies are Leaving the Market: With insurance costs and claims increasing, many small insurance companies are no longer offering Strata Insurance policies, which leaves only a few national companies left, reducing the competition for competitive policies.
How does the Increasing Condo Insurance Costs Impact Buyers?
If you’re a Buyer in the market, you NEED to review the Strata insurance policy. This has always been something I review for my clients, but there was rarely a big difference in policies. Now, with potentially massive deductibles, you need to know what you’re getting into and how much your home insurance policy will cost you. Prior to removing subjects make sure you contact a professional insurance broker to get a quote.
If you’re an investor, consider the costs of your Strata Insurance Policy and ENSURE your tenant has their own tenant insurance policy in place (via a requirement in the lease). You may want to consider the potential costs of a tenant insurance policy prior to purchasing a unit. If the cost is too high for them, they may not get the policy (which could lead to a big problem in the case of major damage) or it may lead to fewer potential renters.
If you live in a building where the deductibles are high or there’s a unique scenario that some insurance companies won’t cover (i.e. aluminum wiring), contact Square One Insurance. They aren’t the most economical company, but they do insure odd scenarios. Always search for multiple quotes so you can find the best policy for your situation. Another company that can help you cover high deductibles is CapriCMW – they’ll bridge the gap between standard home owner insurance policies and your Strata deductible.
If you have any questions, don’t hesitate to contact me: kristi@realestatevancity.ca.