Strata councils are well advised to establish a long-term relationship with one broker
Suzanne Morphet
Sun
Insuring your strata property in case it’s damaged by fire, storms, earthquakes and other hazards is not just common sense; it’s the law.
Section 149 of the Strata Property Act requires strata corporations to obtain enough insurance to cover the full replacement cost. Section 150 requires strata to purchase a minimum of $2 million in liability insurance in case of property damage or bodily injury.
So important is insurance that section 154 says strata corporations must review the adequacy of their insurance every year and report on their coverage at every annual general meeting.
Yet insurance is a major expense for most strata corporations and it’s tempting to reduce expenses. One reader wrote to me: “A small complex such as our own (six units) finds the premium for compulsory liability insurance too onerous . . . Okay, so one year we decide to allow the policy to lapse. Who knows and who is watching?”
His point is that nobody enforces the Strata Property Act, which is true. But when it comes to insurance, it’s probably not a good idea to flout the law.
If your strata corporation is underinsured, it could be subject to something called a co-insurance penalty.
For example, if the appraised replacement cost of the strata building(s) is $10 million and your strata corporation has purchased an $8 million insurance policy, it is 20 per cent underinsured, which means it would be covered for only 80 per cent of any loss. So if, say, you have a $10,000 claim for water damage, your insurance would pay only $8,000 less the deductible.
According to Harvey Williams, the past president of the Vancouver Island Strata Owners Association, insurance brokers sometimes quote on a policy that has a co-insurance clause in it, stating that the insurer will cover, for example, only 90 per cent of the replacement value. Such policies are illegal.
Harvey says he’s even heard of strata corporations with four buildings buying sufficient insurance for only one of them, believing that they can apply that insurance to any one of the four should something happen. “It comes as a shock when there is a loss to discover that there is de facto co-insurance and only one-quarter of the loss, less deductible, is paid,” he says.
Even if you and your strata corporation have no intention of under-insuring, you might be tempted to seek out the best rates you can every year, changing insurance companies, if necessary.
Don’t do that, at least not routinely. “It’s not a good idea to shop around
year to year because if you move from insurance company to insurance company based on price you don’t build a relationship with that company,” says Gerald Matier, executive director of the Insurance Council of B.C., the organization that licenses insurance agents.
He explains that if you have a claim and if you’ve only been insured by that company for one year, it may decline to insure you again. Rates, he says, are “a big factor, but one has to be conscious of the fact there is a benefit to loyalty and consistency.”
And even if loyalty wasn’t a consideration, you probably don’t have the knowledge to pick the best insurance.
In his information booklet for strata corporations, Williams writes: “Strata councils that obtain quotes from several different insurance companies and who then try to compare policies and costs are attempting a task for which they are ill-equipped.”
In other words, when it comes to insurance, find a broker you trust, rely on his or her advice and find other places to cut your expenses.
Williams’ booklet, Strata Insurance, can be ordered from the VISOA website at www.visoa.bc.ca
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