COVID-19 compounds condo insurance crisis
Lori Culbert, Dan Fumano
The Province
Metro Vancouver condo buildings are being forced to spend an average of 65 per cent more on insurance premiums in 2020, new data suggests, providing the first statistical glimpse into the extent of the financial crisis hitting owners in multi-unit buildings.
Postmedia has been documenting for months the plight of condo owners facing either massive premium increases, or policies that will not be fully renewed because insurers are losing their appetite for the B.C. condo market. It is a major concern across the province, but especially in Metro Vancouver, where about a third of the population lives in condos — the highest rate in the country.
Until now, government officials have said the extent of the premium hikes has not been clear, and insurance industry representatives suggested most increases were much lower.
The new data, provided exclusively to The Vancouver Sun, paints the first picture of how insurance rates shot up dramatically through the second half of 2019, and have gone from bad to worse in 2020.
From July to December last year, Metro Vancouver condos “saw a ramp up of insurance premium increases, culminating in the first half of 2020, when we’ve seen quite significant increases,” said Jamie Hankinson, CEO of Eli Report, a Vancouver-based artificial intelligence platform that analyzes strata documents for real estate professionals.
Back in December, Hankinson and his colleagues heard rumblings about premiums soaring, so they reworked Eli Report’s algorithms to look for insurance-related discussions such as claims history and budgets. After analyzing hundreds of Metro Vancouver stratas, Eli found annual insurance premium budgets had jumped an average of 30 per cent in October, November and December, and increased by a whopping average of 65 per cent in the first three months of 2020.
“An increase, on average, of 65 per cent is a rude awakening for anyone,” Hankinson said.
He believes it is a statistically relevant representation of what is happening in the region’s thousands of multi-family condo buildings.
Eli’s findings provide new insight into the dilemma in the absence of official data. When The Vancouver Sun started reporting in February on the plight of condo owners facing 200- and 300-per-cent year-over-year increases in insurance costs, forcing them to come up with hundreds of extra dollars a month to keep their homes, the government had no official statistics on the size of premiums and how they were growing.
In February, a representative of the lobbying organization for Canada’s insurance industry told The Sun those large numbers were outliers, and the average premium increase for B.C. condos was around 30 to 35 per cent, but when asked for the data to support that number, conceded the finding was based on conversations with those in the industry and was “more anecdotal.”
Tony Gioventu, executive director of the Condominium Home Owners Association of B.C., thinks the 65-per-cent average increase across Metro shown in Eli’s data is conservative. Based on what he is hearing from stratas around the province, he believes the real number is probably much higher.
A clearer statistical look at B.C.’s condo insurance crisis should be coming soon. B.C.’s Financial Services Authority has, in recent months, been using its powers as a government agency to get data from insurers and brokers across the province to confirm the extent of premium increases and, hopefully, understand what is driving them.
That work, though, is behind schedule. In the meantime, Eli Report drilled further into the numbers and found 15 per cent of Metro Vancouver buildings it looked at had insurance premiums that at least doubled so far this year — some increases were as high as 240 per cent. By comparison, between September and December last year, Eli Report found less than five per cent of buildings’ insurance budgets climbed 100 per cent or more, and before September, did not find a single strata’s insurance increasing that much.
Some buildings, especially those without large water-damage claims, have avoided the worst hikes, but still the lowest premium increase detected by Eli’s platform so far in 2020 was 20 per cent. A year ago, Hankinson noted, 20 per cent would have seemed like a big hit for many strata councils, but now seems like a big win.
A financial one-two punch
This crisis intensified at the same time the COVID-19 pandemic crippled the economy and wiped out jobs, creating a financial one-two punch for people faced with losses of income as well as higher condo payments.
Christine Miller lives in a well-maintained Delta building, where the annual insurance premium recently increased by 200 per cent — from $166,000 in 2019 to $486,000 in May — despite the complex having no major claims. To bankroll the hefty hike, all owners were required to pay a special levy on June 1 of between $800 and $1,600, depending on the size of their units. In addition, the deductible for water damages has gone up, as have monthly strata fees.
Miller, a nurse, and her partner can afford the increases and she believes her strata council did the best it could under difficult circumstances, but she is worried about some neighbours who have lost income because of the coronavirus pandemic.
“I know people in this building who are not working, who were in the food industry and that kind of thing. And there are a lot of seniors in our building, and they have a hard time when our normal strata fees go up by something like 10 per cent,” said Miller.
“It’s just a crappy situation for everyone in B.C.”
She wonders if there could be a law that caps insurance increases, similar to the way landlords cannot raise rents past a certain percentage annually.
“It’s sort of strange to me that (insurance companies) can just put it up however high they want and no one can stop that.”
Miller’s strata council sent a letter to owners in April that said one of the reasons for the hike was that “unfortunately, COVID-19 has also affected the insurance industry, resulting in even higher premiums.”
COVID-19 infects the industry
The harsh economic fallout from COVID-19 has indeed dealt a serious blow to the insurance sector, said Marcos Alvarez, head of the insurance team at DBRS Morningstar, a global credit ratings business.
The global insurance industry had started to “harden” — meaning premiums went up — in 2019, due in part to several earlier catastrophic weather events such as hurricanes. And some insurers have shied away from the condo market, which reduces competition, because of a variety of factors, such as increased water-damage claims and a perception that the quality of the overall stock of buildings is decreasing, said Alvarez, who is president of his strata council in Toronto.
“I know the problem first-hand.”
Now, those same insurers are being hit by an avalanche of claims — estimated globally to be valued at $80 billion to $100 billion — due to the coronavirus: large sporting events, such as Wimbledon, have cancellation insurance, and so do travellers who had vacations upended. In some countries, people are suing employers after contacting the coronavirus at work, Alvarez said.
“I don’t think the premiums are going to go down for the rest of 2020. And the reason for that is the global insurance market — not just Canada, but on a global scale — will continue to take a hit in terms of losses, given the pandemic,” Alvarez said.
“I wish I had different information for owners, but I don’t think the situation will improve in the short-term.”
Essentially, he said, the condo insurance market was already “broken” in some provinces, and COVID-19 is now making that worse — a trend likely to continue into 2021.
“In terms of condo insurance in Canada, and particularly in B.C., this hardening of the market will translate into higher premiums, higher deductibles, lower coverages — or no coverage at all for certain buildings — or a combination of these,” Alvarez said.
“That is not very positive news for condo owners next year unless there is some form of backstop from the government that helps reduce premiums, or condo boards work proactively with insurance companies in implementing loss-reduction strategies, particularly those aimed at reducing water damage claims.”
When it comes to positive news for condo owners, even those representing the insurance industry don’t appear to have much to offer.
Asked if he can point to any cause for optimism, Rob de Pruis of the Insurance Bureau of Canada, a national industry association, said this week: “It’s a difficult question to answer, because we don’t know if things are going to get worse.
“We certainly know about many condos that saw some very significant increases. Are they going to see the same kinds of triple-digit per-cent increases next year? Very hard to predict.”
De Pruis, the association’s director of consumer and industry relations for western Canada, said the country’s insurance industry is doing what it can to “manage” the problem, but said there are many factors at play.
“We’re seeing an increased frequency of claims, we’re seeing severe weather as a factor, we’re seeing low interest rates as a factor as well. Those are not things that magically change overnight.”
Some industry sources believe things will get worse before they get better, and the COVID pandemic will only prolong the pain.
“The general hardening of the insurance market was underway before the pandemic, but unfortunately COVID-19 has cost the global industry massive amounts of billions of dollars,” said Chuck Byrne, executive director of the Insurance Brokers Association of B.C. “The industry, globally, has taken a pretty big hit, and unfortunately that’s going to have an impact on the strata market.”
The pandemic could mean this “hard market” lasts a couple of years longer than it otherwise might have, he added.
Government moving slowly
In early March, Postmedia interviewed Finance Minister Carole James, who said her government was “working hard” to address the crisis, and listed some options being considered to try to get insurance companies to offer lower rates. She had hoped her ministry would produce some short-term ideas by April.
But now in early June, when Postmedia asked for an update on the government’s progress, James’ ministry would only say that “this issue remains a priority for government,” and it is working on “next steps” with the new Crown agency that regulates insurance, the B.C. Financial Services Authority (FSA).
Because home insurance is in the private sector, James said in March, government had no data on fluctuating insurance rates for condos, so she asked the FSA to gather that information. The FSA’s deputy superintendent, Frank Chong, said earlier this year he had hoped to have a partial picture of the cost and availability of insurance in B.C.’s condo market by the end of March, and a complete picture by the end of April.
Postmedia asked for an update this week, and in an email Chong said his agency would make public its interim findings summarizing data obtained from brokers and insurers later this month.
“The report’s primary objective was to better understand the strata insurance market, to confirm the full extent of premium increases and to understand the underlying drivers of those increases,” Chong’s email said. “Initial indications suggest that the factors driving up the cost of strata insurance are complex and concerning.”
The government’s process is expected to analyze a larger cohort of buildings across the province than the data available to Eli Report.
Condos without insurance for three months
Kathy O’Connor, who lives on a fixed income and cannot afford large strata fee increases, would like the government to take steps that would shield owners like her from massive insurance hikes. She has lived for 16 years in an older condo complex in Metro Vancouver, where her strata fees went up by 17 per cent just in February alone.
“And that’s a lot for people like me and others on fixed incomes. My fear is it will climb higher when we get the new insurance. It will put many owners in a negative financial state on a long-term basis, which can lead to the unknown,” she said this week.
O’Connor’s building has been without property insurance since early March, when the previous insurer announced the policy would not be renewed. Her strata council has, so far, been unable to find a replacement — a scary situation for residents.
“I worry about water damage in the building, especially in laundry rooms and other common areas. People must be very diligent in this time,” she said. “Because the whole building doesn’t have the property insurance, if anything happens, we could be in big trouble.”
CapriCMW, a B.C.-based company that provides personal and business insurance, said in its May newsletter that it is a priority to get full placement coverage for clients, to keep their buildings in compliance with the B.C. Strata Property Act, but “it is possible that stratas will not be able to achieve full renewal coverage” due to the reduction of players in the market.
“The insurance market continues to change quickly and dramatically through 2020. In response to ongoing financial losses, insurers globally are reducing the amount of capital they are prepared to offer to the market in an unprecedented fashion, leading to dramatic rate and deductible increases,” the newsletter said.
“The novel coronavirus served to amplify anxieties for owners, and has impacted insurance markets with further uncertainty and instability. … In particular, the real estate and strata market has been the hardest hit, with insurers carrying the additional burden of record-high water damage claims.”
However, several condo owners told Postmedia this week they did not have any large water-damage claims, and yet had skyrocketing premiums — one for more than 300 per cent — and deductibles so large it made having insurance almost pointless.
Guarded hope for the future
Gioventu, with the Condominium Home Owners Association of B.C., said his group will submit a report Monday to the B.C. government, including findings from the organization’s investigation of the province’s strata corporations and recommendations for legislative changes to help the situation.
Gioventu is skeptical that the COVID-19 pandemic has had a serious impact on B.C.’s condo insurance challenges. He believes the provincial government is taking the issue seriously and, despite the legislature’s shutdown, staffers have been diligently carrying on with policy work behind the scenes.
“If we’re ever going to get changes, it’s going to be with this government,” Gioventu said. “They’ve engaged, they’ve taken it seriously. I’ve had personal calls from the ministers.”
The opposition Liberals, too, seem to understand the problem well and want to help tackle it, Gioventu said. “This is not a partisan issue. This is a public issue across the province.”
But hundreds of thousands of B.C. condo owners hope the government acts with urgency. For many, their single biggest investment depends on it.
© 2020 Postmedia Network Inc.
