Condo owners across Canada could be forced to pay costly damages to common areas of buildings as condominium boards attempt to contain the cost of soaring insurance premiums by increasing policy deductibles – in some cases raising them to $ 150,000 against $ 10,000 currently.
Industry experts say that partial costs of damage to common areas caused by a condo owner’s unit, such as a leaking washing machine flooding a hallway, is usually passed on by the condo company to the owner of the condo. the responsible unit, which is required to pay the deductible – the uninsured part of the damage.
“It’s a disaster that’s waiting to happen because there has been very little communication from condo boards when they increase their deductibles, leaving many condo owners at risk of having to pay dozens of dollars. thousands of dollars out of pocket, ”said Sabine Ghali, director of Buttonwood Property Management Inc. in Toronto.
Condominium companies – also called strata companies in some provinces – are legally required to carry insurance policies to cover damage caused to the common areas of their buildings. Like personal insurance policies, these contracts have a deductible, which is not covered and must be paid out of pocket by the condominium corporation if it makes a claim.
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Many condo companies are run by a group of individual condo owners, who are also responsible for trying to keep monthly condo fees from increasing. But this has become increasingly difficult as insurers have sharply increased premiums – sometimes doubling them or more – as claims costs rise.
To mitigate the higher premiums, many buildings choose to increase their deductibles, which helps lower the annual cost of insurance. The cost of a A higher deductible is then transferred to condo owners when a building files a claim for damages – a practice known as chargebacks.
For example, if a kitchen fire in a condo unit damages an elevator, the owner of the unit will be responsible for paying the total franchise of the building.
Most unit owners have insurance policies that cover deductibles charged by condominium companies, but only for the “more traditional” maximum amount of $ 10,000, said Ms. Ghali, who manages condominiums. in the Greater Toronto Area.
The number of properties that have upped their deductibles has accelerated over the past year, she said, with many condominium boards only communicating changes in annual updates that are typically sent out by the post in newsletters.
Ms Ghali said the increase in franchise limits should not be communicated in a format that can “get lost in the reshuffle”. Condo boards need to better educate condo owners about building and unit insurance policies, especially the amount of unit owner chargeback coverage. currently have and which insurance companies will cover a new, higher amount.
“Some insurance companies have a cap on what they will cover for deductibles, which means condo owners can scramble to find a new policy,” Ms. Ghali said.
The recent surge in deductibles is due to the rising cost of insurance, says Rob de Pruis, director of consumer and industry relations at the Insurance Bureau of Canada, a national industry group with 74 insurance companies. member insurance.
“The industry has seen rising claims costs in all kinds of different areas – not only real estate claims, but also liability claims,” said de Pruis. “The extreme weather conditions we have experienced in British Columbia, along with macroeconomic factors such as low interest rates, are driving up the cost of insurance premiums. “
“And, like your auto insurance, one way to lower the insurance premium is to increase your deductible. “
Mr de Pruis said shifting the rising cost of premiums from a company to an individual unit holder does not address the root cause of the price increases – the rising cost of claims.
In the summer of 2020, IBC established a National Commercial Insurance Working Group to organize roundtable discussions to address several consumer concerns about the affordability of commercial insurance, including the commercial insurance market. strata commercial insurance, and in particular in British Columbia and Alberta.
The IBC has issued a number of recommendations to industry, including a proposal to regulate building maintenance and make it more efficient (to reduce the number of complaints), advising companies to condominium on how to improve their risk profile and thus qualify for better premiums, and cap the amount that a condominium corporation can charge unit owners on its deductible.
Alberta recently made changes to allow condominium companies to claim only up to a maximum of $ 50,000 deductible from a unit holder.
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