In B.C., 1.5 million people, almost one in three, live in strata condos and townhouses, And many of which have been hit by skyrocketing insurance rates that have left residents in financial distress and worried about their futures.
“It is very disturbing and it is gut-wrenching. It is a grave concern for a lot of people,” said Jacqueline de Vooght, whose well-maintained Kelowna complex faces increases of more than 400 per cent for both its insurance premiums and water-damage deductibles.
“This must stop. … People are scared.”
Since Postmedia started reporting on this crisis last month, dozens of readers have shared horror stories of massive rate hikes (regardless of whether their buildings are old or new, or well-maintained), staggering increases in deductibles, insurance companies refusing to renew some policies or offering only partial replacement value.
Some unit owners worry they won’t be able to renew mortgages without proper building insurance while others can’t afford hundreds of extra dollars a month in strata fees. Renters worry increases will be passed on to them or that their landlords will simply sell, forcing them to move.
Many are angry that working families who bought into stratas because they couldn’t afford more expensive single-family homes now find themselves helpless in this newest crisis to hit B.C.’s housing market.
Dozens of interviews this week make it clear that although government and regulators are trying to find solutions, they have only just started gathering the necessary information to try to understand what is happening — so no quick fix is on the horizon.
And that means the situation is expected to get far worse before it gets better for B.C.’s 35,000 strata corporations and their occupants, who include just about every segment of society: Families, seniors, immigrants, renters, people on fixed incomes and high-earners in luxury towers.
That is of no comfort to residents like Asifa Lalji, who had to quit her public relations job two years ago when her muscular dystrophy worsened and now lives on disability assistance. Insurance rate hikes for her New Westminster condo building mean her strata fees will increase about $200 a month, which is tough to absorb if your budget is already stretched.
“There are seniors here that are on fixed incomes, low-income families that are going paycheque to paycheque, and people like me with disabilities. … You don’t want to be depleting all your savings and building up your debt just to live day-to-day, which is what is happening,” she said.
“And we’ve been told by the insurance companies that this is going to continue for at least another year.”
Lalji started an online petition that has already gathered nearly 8,700 signatures. She wants the provincial government to come up with “short-term and long-term changes that will protect the strata owner and renter from unfair increases and unfair liability.”
Finance Minister Carole James said that her government is “working hard” to have some short-term ideas in the next month, but even those are unlikely to offer relief to someone like Lalji.
“This is a very complex issue. There aren’t simple solutions,” James said.
“We are gathering the data we need for long-term solutions. We are looking at how we can address the short-term pressures that people are facing. There isn’t a quick fix here, but I certainly am committed to making sure we are doing everything we can.”
James listed some options being considered by government to try to get companies to offer lower rates, although she made it clear they have not committed to pursuing any of them yet. These include closing a loophole that allows stratas to defer depreciation reports, requiring buildings to take measures to lower the risk of water damage, and more education for strata councils, which are comprised of owners who don’t necessarily have in-depth knowledge about maintenance or insurance.
Postmedia asked James about other ideas, including capping insurance rate hikes, making it mandatory for condo owners to have additional insurance to cover their own units, and government-operated housing insurance, similar to ICBC for cars. James said nothing was being ruled out as the government continues to investigate.
James said this issue wasn’t on the government’s radar until late last fall, about the time stratas started receiving renewal notices from their insurers. At this point, she does not even know how many stratas are being affected, and noted that condo owners without rate hikes are worried about what will happen to their buildings in the future.
“The magnitude of the problem still has to be determined,” she said.
Because home insurance is in the private sector, James said, government has not kept figures on rate hikes for condos. But she has asked the information be gathered now by the new Crown agency that regulates insurance, the B.C. Financial Services Authority, which replaced the Financial Institutions Commission.
So, well into a crisis, the Financial Services Authority is essentially starting at square 1 to gather information on how widespread rate hikes are, the average increases across the province, and why this is happening now.
The authority is determining how many of the 300 insurance companies in B.C. provide strata insurance, and how many have stopped offering policies to condos and townhouses, said its deputy superintendent, Frank Chong. It is also collecting at least two years of data on every policy’s value, location, number of units, type of units, construction type, age of building, commissions paid to brokers, and deductibles for earthquake, sewer and water damage.
Chong, who noted his agency’s role is to “make sure that consumers are being treated fairly,” hopes to have a partial picture by the end of March, and a complete picture by the end of April.
“We recognize the significance of how important of an issue this is to people and the concern and uncertainty it is really causing right now,“ he said.
“There is overall recognition among various stakeholders, the (authority) included, that this will remain an issue going forward. So we will devote resources here to understanding how this issue has played out and how it will play out over the coming weeks and months.”
The data, Chong hopes, will explain why insurers feel the strata market has become an unprofitable one for them.
Even at the national level, the Canadian Council of Insurance Regulators, an umbrella organization for regulators in each province, has not taken action on this issue. Its members will meet in early April to discuss whether rate hikes are occurring in other provinces and to suggest possible responses, said the council’s policy manager, Tony Toy.
Toy, who is also with the Ontario regulator, said he is aware of only B.C. and Alberta raising concerns. Chong, also a member of the national council, said he has heard of similar concerns, but to a lesser extent, in Manitoba and Quebec.
It’s not clear, though, why B.C.’s neighbours to the south aren’t reporting similar cost increases, including in the hot real estate market of Seattle.
“We’re not hearing from our consumers about this issue,” said Stephanie Marquis, a spokeswoman for the Washington state Office of the Insurance Commissioner. “According to our actuaries who review the filings … they haven’t seen a slew of big increases for condos.”
Some buildings struggle to get insurance
The steep increases in B.C. are a big enough problem for condo owners. But for Michel Proulx, there is an even bigger problem keeping him up at night.
Last month, HUB International, a massive American insurance brokerage, notified the strata council at Proulx’s Port Coquitlam building that its insurance would expire on Friday, March 6, due to “reducing market capacity.” Following negotiations with the strata, HUB came back this week to say it found enough insurers to cover 67 per cent of the replacement costs of the building, but not the 100 per cent required under B.C.’s Strata Property Act.
Proulx, a retired banker, is concerned not only about the financial risk but also the legal issues of not having sufficient insurance — people may not be able to renew mortgages and selling units may become impossible.
Proulx, who said his large complex is well-maintained and he is not aware of major recent claims, urged the government to step in quickly before many unit owners face financial ruin.
Owners in his building are facing strata fees increases of roughly $200 a month, he said. “We can swing it, but there are a lot of young families in our development for whom it could be pretty tight with mortgage payments.”
Why is this happening?
There are several confusing elements in this crisis, such as why the insurance hikes appear to be hitting British Columbia the hardest and why — so far — single-family homes seem to be immune.
We went in search of answers from several places, including HUB International.
“The class has been unprofitable for most insurers over the past few years due to … rising claims costs and frequency,” said Sarah Thompson, HUB’s chief marketing officer in B.C. “Poorly constructed new buildings and the lack of preventative maintenance in older buildings has driven higher frequency and severity of water claims.”
Other factors include buildings being constructed too close together “without municipalities investing in improving fire protection,” the increase in reconstruction costs, the rise in severe weather in Canada and globally, and some insurers have left the industry or reduced the amount they will cover, which has led to increased premiums and higher deductibles “to attract insurers” to stay in the market, Thompson said.
When asked about examples like Proulx’s building, which could not get a renewal to cover 100 per cent of replacement costs, Thompson said the broker approaches more than 40 insurers to try to find full coverage for clients. “Unfortunately, given the current market conditions, full replacement cost coverage is not always achievable,” she said in an email.
Condo insurance increases are happening in other areas of Canada, she said, but B.C. has an extra challenge because it is in an earthquake-prone area.
James, the finance minister, insists increases are happening across Canada, including in Ontario. But she notes the high price of labour and materials makes replacement costs for damaged buildings higher in B.C. than in other provinces. Another move B.C.’s government is considering is improving transparency so that unit owners would be given more notice about rate hikes and better understand why costs are increasing.
James stopped short, though, of endorsing a recommendation that stemmed from an interim report released during Australia’s three-year royal commission into out-of-control insurance rates in the northern half of the country: It urged the government to develop a national home insurance comparison website to allow consumers to compare policies.
The report from Australia notes that in the northern half of the country, which has had a series of expensive insurance claims, residents are anxious about the steep rise in rates and “fear devastation if disaster hits” and they are uninsured or underinsured.
“We have observed an unusual competitive dynamic, with insurers in northern Australia not necessarily motivated to compete on price for market share,” the report says. “Instead we have seen them increasing prices to manage their exposure in a region they perceive to be risky or volatile. This is exacerbating affordability concerns.”
Queensland resident Margaret Shaw has been advocating change since 2011, but said some stratas simply can’t find insurance. Laws have been changed to allow some buildings to have only partial replacement value insurance because that is all they can find. Yet one complex with previous flood damage had its insurance increase to $425,000 a year from $92,000.
“Home and contents and rural (insurance) seem to have stabilized. Commercial and business is getting worse. And strata, well — strata is well and truly stuffed,” Shaw said in an email. “I hate to tell you, the situation will only get worse, with no solution available at the moment.”
Industry representatives offer explanations, recommendations
The Insurance Brokers Association of B.C. released a set of proposed legislative reforms last month, and weeks later the Insurance Bureau of Canada, the lobbying association for the country’s insurers, released its own recommendations. Both organizations, along with the opposition B.C. Liberals, want the Strata Property Act amended to clearly define a standard unit to determine what strata lot owners are responsible for and what the strata corporation is responsible for.
That move could help alleviate confusion and reduce the number of claims filed by stratas, said Rob de Pruis, IBC director of consumer and industry relations for Western Canada. He, like the government, does not have figures on how many insurers have exited this market.
Despite many headlines and the opposition Liberals providing examples of 300- or 400-per-cent condo insurance cost hikes, he argued the reality is closer to “an average of 30 to 35 per cent.” But conceded that information is “more anecdotal.”
De Pruis said insurance companies are being hit by “a whole bunch of market conditions” such as increasing frequency and severity of claims filed by stratas and climate-related disasters across the globe, including hurricanes in the U.S. and wildfires in Australia.
“It’s hard to translate to say the California wildfires are causing your condo premium in Vancouver to go up, it’s not a direct correlation. But that’s just another compounding factor,” he said. “We just seem to have a lot of economic and regional factors that are converging all at once that are impacting, certainly, many strata corporations.”
Condo owners ‘blindsided’
Tony Gioventu, executive director of the Condominium Home Owners Association of B.C., worries some policy proposals being advanced by the insurance industry may not result in lower rates for consumers.
“Are we just throwing the industry more of a financial benefit and we’re not getting anything in return? In which case, it’s the consumer who pays the price for it,” he said.
This week, Gioventu heard from residents of a Surrey condo tower, which has had several insurance claims, that their premiums are increasing 600 per cent. It will double the cost of monthly strata fees from an average of $350 a unit to $700. Deductibles have jumped to $750,000, Gioventu said, which raises the question: “Why bother to insure at all?”
High-risk buildings tend to be condo towers that are more than 25 years old and any buildings with a history of claims or maintenance problems, even low-rise townhouses, said Gioventu. Luxury buildings, even new ones, are also high-risk, he said, because the high-end finishings mean high replacement costs.
Gioventu, who has been in his role since 1998, said the recent insurance hikes hitting some of B.C.’s 900,000 condo units represent probably the biggest challenge his organization has faced since the leaky condo crisis of the late 1990s.
“This condo insurance thing has totally blindsided everyone. No one saw it coming,” Gioventu said. “It’s going to redefine the term housing affordability.”
Ian Gilhooley, a retired financial executive, said his Coal Harbour building has been hit with an insurance increase of close to 225 per cent, despite having no serious claims history.
“Basically, this market can be played, because nobody has any choice in the matter. What’s to stop it going up 300 per cent next year?” Gilhooley said. “There’s absolutely no way you can look at this marketplace and say it’s functioning properly … There’s a very broad public policy issue here.”
Almost half the condos in Vancouver are not occupied by their owners, and James, the finance minister, said that anything that could raise rents is a real concern.
Like Gilhooley, de Vooght said her Kelowna complex is meticulously maintained but still faces insurance premium hikes to $325,000 a year from $100,000 and deductibles for water damage jumping to $50,000 from $10,000.
“Frankly, this is not sustainable. Owners cannot afford these increases,” said de Vooght, noting numerous seniors in her building live on strict budgets. “Hard-working, responsible people have downsized to what we thought was an affordable way to retire, and now this has blown up in our faces.”