Provincial Response to Strata Insurance Crisis
Alex J. Chang, Associate
Phone: 604-685-1255
Email: ajc@lmlaw.ca
In recent years insurance costs for strata corporations have inflated to the point of crisis. Many strata corporations are experiencing large increases in insurance costs or have challenges finding insurance at all. BCFSA’s interim findings indicate an average increase of 40% year-over-year to premiums province-wide and a 50% increase in Metro Vancouver.
Lesperance Mendes Lawyers acts for hundreds of strata corporations and strata owners across the province. Their concerns and dismay regarding this crisis are becoming ubiquitous.
For many, stratas represent the only affordable model of homeownership, and the province estimates that more than 1.5 million British Columbians live in strata housing. Uncontrolled costs could reduce the accessibility of that model for many. As the Minister of Finance stated, “The rising cost of strata insurance is a major financial pressure facing thousands of British Columbians during an already challenging time.”
On June 23, 2020, the province announced some of the legislative and regulatory reforms it intends to enact to tackle the crisis. They include:
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- a) setting out clearer guidelines for what strata corporations are required to insure;
- b) requiring strata corporations to inform owners about insurance coverage, provide notice of any policy changes, including increasing deductibles, and allowing stratas to use their contingency reserve fund when necessary to pay for unexpected premium increases;
- c) ending the practice of referral fees between insurers or insurance brokers and property managers or other third parties;
- d) setting limits on how much strata corporations can claim from an owner that is legally responsible for a loss or damage, but through no fault of their own;
- e) identifying when a strata corporation may not be required to get full insurance coverage;
- f) strengthening depreciation report requirements;
- g) changing the minimum required contributions made by strata owners to the contingency reserve fund;
- h) requiring insurance brokers to disclose the amount of their commissions; and
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- i) adding insurer notification requirements to strata corporations regarding changes to insurance coverage and costs, or an intent not to renew.
The province’s announcement suggests that reforms a) to d) will be more immediate once the required legislation is passed. Reforms e) to i) will be implemented as regulatory amendments after further consultation with the stakeholders in the strata community.
Many of these are welcome reforms, which the government has referred to as “first steps.”
In this author’s view, the government should also be looking at improvements to new construction and the new home warranty regime in BC. While the causes of the insurance cost increases are numerous and complicated, the BCFSA’s interim report suggests that construction defects are a contributing factor to rising insurance costs.
Insurers have struggled with sustaining profitability in BC’s strata insurance market due to losses from mostly minor claims. A key driver of this trend is water damage from plumbing leaks and failures, which accounted for approximately 46% of the total claim costs since 2017. This trend is particularly pronounced for new buildings less than five-years-old, where average claims costs were 80% higher than the overall average.
Higher claims costs for new buildings would appear to suggest a more pronounced issue with defective construction, as opposed to poor maintenance, though that may vary from building to building. For example, many older buildings with poor maintenance records are also seeing dramatic rises in their insurance costs if they can get sufficient insurance at all.
The BCFSA has suggested that strata insurers may be absorbing costs that could be covered under the new home warranty programs. Lesperance Mendes regularly advises strata corporations on new home warranty claims. The BCFSA’s hypothesis is consistent with our experience. Warranty providers under the Homeowner Protection Act often take the position that plumbing and mechanical defects are only covered if reported under the 15 month or 2 year common property warranties. Unfortunately, this is often too early for all but the most organized and savvy strata corporations to detect a potential problem, retain a consultant to investigate and make a claim.
This author suggests the province’s response to the insurance crisis should also include amendments to the Homeowner Protection Act and its Regulation so that it is easier to claim high-risk items such as defective plumbing under new home warranties.
WHAT WE DO: Lesperance Mendes would be pleased to assist you regarding a strata or new home warranty matter. To make an appointment, please contact Alex J. Chang, Associate, or Paul G. Mendes, Partner.
THIS ARTICLE IS NOT LEGAL ADVICE: This article provides general information and should not be relied upon without independent legal advice with respect to the specific facts of your case.