Insurance Renewals And The Outlook For 2013… So Far.
With the ever-changing nature of global insurance markets and the related moving pieces leading to the local trend of rising premium costs, we have been looking to find unbiased third party articles and information to pass along to keep our clients informed and hopefully help make some sense of this very significant and mandatory operating cost. In this article, we offer some commentary on the insurance renewal process along with some information on the 2013 outlook for Strata Corporation Insurance in British Columbia.
Many clients are very comfortable with the service they have experienced and the coverage being provided by their existing policy, with this feeling usually forged by experiencing a significant loss and therefore having that coverage tested. That being said, Property Managers are often requested to solicit quotations for comparison and we make our best efforts to this end when so directed. There are a limited number of players that provide solid strata corporation-specific policies and they are further restricted by the available insurance underwriters in the marketplace (unless they act as their own underwriter), so the ability to gather multiple quotes is not always a given.
When we are able to get competitive quotes we are most often requested to summarize the major points of each policy. These include the various coverages offered, potential exclusions, related deductibles, premium cost, and more. We’re often asked to provide a recommendation to the Strata Council based on this comparison. Please note that Stratawest does not offer any opinion or evaluation on the merits of the programs of insurance brokers.
From many years of experience with the most common and ‘battle-tested’ policies in the industry, we can state that we are generally comfortable with the respective policy wording of those ‘known’ policies and that the issues we experience on claims with those policies are relatively minor. However, we are not insurance experts and the actual policy wordings from insurance firms are several hundred pages long. Many Strata Councils look at the Insurance Declaration page (usually one or two pages) to compare policies, because that is the only easily digestible document. We know from experience though that it’s in the full policy wording that a policy will be deemed to be sufficient or not. We simply cannot tell a strata council all the ways in which one policy might be deficient (or superior, for that matter) compared to another. Furthermore, strata councils are often of the view that “insurance is insurance is insurance” and this is not the case. The truth is, in fact, a fair bit more nuanced and we can say with certainty that making the decision based solely on cost is not a good, long term strategy. While this is often true in other aspects of Strata Corporation governance, rarely is it as important as with insurance. The policies are extremely complicated and there is simply no way to compare them ‘apples to apples’, or for us to be certain that an unfamiliar policy will not leave you exposed (and potentially out of pocket for far more than any savings on the actual premium cost in the event a loss is not covered). To get a review from an independent expert is something that would cost several thousand dollars, so obviously not many strata corporations go that route.
With respect to timing, unfortunately the nature of getting insurance quotes and facilitating renewal is always later in the game than we would prefer. The Strata Council commonly feels that they are very much under the gun to make a decision and proceed with binding a policy before the current one expires. This is true. Insurance brokers and underwriters will wait until the latest possible moment to ensure that their policy is both as accurate as possible and, presumably, as profitable to them. While this is out of our direct control, we will continue to be as proactive and pushy as possible to get the information in front of our clients as early as possible prior to renewal.
British Columbia Strata Corporation Insurance – 2013 Outlook
As many strata councils are already well aware, the costs of insurance for strata corporations are continuing to rise in 2013. We are advised there are three primary reasons the residential sector will see these increases:
1.‘Improved’ Analytics The insurance industry relies on advanced analytical tools and software models to estimate how much premium they need to collect to pay for large catastrophes such as earthquakes, floods and large storms. Improved research and information gained from recent natural catastrophes has created a greater understanding of likely damage. The damage and destruction now predicted to follow these catastrophes has risen dramatically. Of course, that the prices of construction and finishings in strata corporations have risen dramatically over the past few years also plays into this factor.
Furthermore, in earthquake prone areas specific soil types have been found to respond particularly poorly in an earthquake and are now considered a much higher risk. Communities built on soil prone to liquefaction are expected to sustain much greater damage than believed before. “High Hazard” zones are predetermined by postal codes (Richmond, New Westminster, Delta and parts of Vancouver Island and properties within 500’ of water are considered at highest risk).
2. Regulation Changes Insurance regulators released new guidelines in 2012 requiring Canadian property insurers to put more money aside to cope with extreme catastrophes. While the purpose of the regulations is to protect policy holders, additional capital is required by insurers to meet the guidelines, and this can only be collected through increased premiums.
3.Increased internal costs ‘Reinsurance’ is insurance purchased by insurance companies. Reinsurance allows insurance companies to manage how much risk they keep and how much they transfer. In the face of “Super Storm Sandy” and other recent natural catastrophes, reinsurers have been charging significantly more to provide their protection. Insurance companies are passing along those increased reinsurance costs by increasing their premiums to policyholders. Though your policy may be held by a local broker, all insurers are essentially international- what happens elsewhere has real and measurable impacts on our market.
We have been advised that the result of these industry changes will translate to increased premiums in the residential sector of between 10 to 25%. Properties located in high hazard zones or that have experienced significant claims will likely be impacted more.
We hope that you find this article informative and we intend on providing more information on this topic in the near future. In fact, it is expected that the Insurance Bureau of Canada will publish a report on the industry wide problem of BC quake costs and we will post this information as soon as we are provided a copy.