Condo unit owners across Canada could be on the hook to pay for expensive damages to building common areas as condo boards try to limit the cost of surging insurance premiums by increasing the deductibles on policies – in some cases raising them to $150,000 from $10,000 currently.
Industry experts say partial costs for damage to common spaces caused by a condo owner’s unit, such as a leaking washing machine flooding a hallway, are typically passed on by the condo corporation to the unit holder responsible, who is required to pay the deductible – the uninsured portion of the damages.
“This is a catastrophe waiting to happen as there has been very little communication from condo boards when they increase their deductibles, leaving many condo owners at risk of having to pay tens of thousands of dollars out of pocket,” said Sabine Ghali, director of Buttonwood Property Management Inc. in Toronto.
Condo corporations – also known as strata corporations in some provinces – are legally required to buy insurance policies to cover damages to common areas of their buildings. Like insurance policies for individuals, these contracts have a deductible, which is not covered and must be paid out of pocket by the condo corporation if it makes a claim.
Many condo corporations are run by of a group of individual condo owners, who are also in charge of trying to keep monthly condo fees from increasing. But that has become increasingly difficult as insurers have sharply increased premiums – sometimes doubling them or more – as claims costs rise.
To mitigate higher premiums, many buildings are opting to raise their deductibles, which helps lower the annual cost of insurance. The cost of a higher deductible is then passed onto condo owners when a building submits a claim for damages – a practice known as a chargeback.
For example, if a kitchen fire in one condo unit damages an elevator, the unit’s owner will be responsible for paying the building’s full deductible.
Most unit owners have insurance policies that cover deductibles charged back by condo corporations, but only for the “more traditional” maximum amount of $10,000, said Ms. Ghali, who manages condo units and single family homes throughout the Greater Toronto Area, on behalf of investors.
The number of buildings that have increased their deductible has been accelerating over the past year, she said, with many condo boards only communicating the changes in annual updates that are usually mailed out in newsletters.
Ms. Ghali said the increase in deductible limits should not be communicated in a format that can “get lost in the shuffle.” Condo boards need to do a better job of educating condo owners on building and unit insurance policies – especially on how much chargeback coverage unit owners 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, meaning condo owners can be left scrambling to find a new policy altogether,” Ms. Ghali said.
The recent spike 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 company members.
“The industry has seen an increase in claims costs in all kinds of different areas – not just in property claims but also in liability claims,” Mr. de Pruis said. “The severe weather we have seen in British Columbia, along with macroeconomic factors such as low interest rates, is pushing up the cost of insurance premiums.”
“And, similar to your car insurance, one way to help lower the insurance premium is to increase your deductible.”
Mr. de Pruis said shifting the rising cost of premiums from a corporation onto an individual unit holder is not addressing the root cause of the price increases, which is the rising cost of claims.
In the summer of 2020, the IBC set up a national commercial insurance task force to hold roundtable meetings to address several consumer concerns about the affordability of commercial insurance, including the strata commercial insurance market, and particularly in British Columbia and Alberta.
The IBC published a number of recommendations to the industry, including a proposal to regulate building maintenance and make it more efficient (to reduce the number of claims), educating condo corporations on how to improve their risk profile and thereby qualify for better premiums, and putting a cap on the amount a condo corporation can collect from unit owners on its deductible.
Alberta recently made changes to allow condo corporations to only claim up to a maximum of $50,000 of a deductible from a unit holder.
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