One of Canada’s largest condominium builders has announced it will add a raft of new technologies and systems to its future high-rise projects to help address an increase in water damage problems.
“Water damage in condo development is an industry-wide issue,” said Peter Webb, senior vice-president of development for Concord Pacific Group Inc. “When there is water damage it can be rapid and expensive, and it’s causing big impacts on insurance premiums. Our interest is trying to protect against inflated premiums, and in trying to mitigate the potential of these problems.”
There have been several recent high-profile examples of the problems water can cause in high-rises. Faulty gaskets at the 49-storey Vancouver House condominium flooded 17 units in April, 2021. On Christmas Eve, a frozen pipe burst and drenched 15 floors of a 41-storey apartment building in Calgary, forcing hundreds of residents out of the building for weeks.
Insurers have taken notice. The cost of liability coverage for Vancouver-area strata corporations has risen as much as 50 per cent in recent years.
The main issue with high-rise buildings is the amount of pressure in the water system, according to Nathan Normoyle, vice-president for global operations at Access Restoration Services Ltd., which specializes in remediating damage done to high-rise buildings. “Typical city water pressure will bring cold water up to the seventh floor,” Mr. Normoyle said. “For buildings that are higher, you have to have booster pumps. When you’ve got highly pressurized lines – these are four-inch and six-inch lines – with even the smallest break, you can cause millions of dollars of damage in a few minutes.”
That’s what happened at the Emerald condominium in north Toronto in April of last year, when a viral video captured the aftermath of a catastrophic plumbing failure, leading some wags to call the building Toronto’s Niagara Falls. But despite the deluge only lasting less than half an hour, residents are still feeling the consequences.
“We had over 200 units in this building damaged,” said Howard Keith Juriansz, a condo board director at the building. “They cleared everybody out; from floors 25 and up they had to leave.” Mr. Juriansz was unable to return to his 40th-storey penthouse apartment for five months. The water filled hallways and gushed down elevator shafts. All four of the building’s elevators were damaged (a common risk when a high-rise floods). Mr. Juriansz recalls how an elevator technician had to ride on top of the one functioning elevator car for hours to keep it working long enough to remove those in the building with mobility issues.
Mr. Juriansz praised the insurance company for quick action, though he noted the building’s new insurance now comes with a steep $250,000 deductible, and the rates are higher, too. The total bill for damage and relocation costs is still unknown, but he said its already into the millions.
When water gets into a high-rise, the two major problems are mould and structural damage, according to Mr. Normoyle. Sound- and fire-proofing in walls creates multiple layers of materials that have to be dried or replaced, and steel wall studs also have open tracks at the bottoms that are perhaps too good at collecting water (which can lead to rust, if unattended).
“What we have noted is the frequency of water damage in new buildings; those built in the last three years,” Mr. Normoyle said, which he blamed on “the quality of the workmanship or materials or installation.”
Insurers have noticed the pattern, too. In 2020, the British Columbia Financial Services Authority, which regulates the industry, surveyed strata properties across the province and concluded that in terms of the value of claims, newer buildings less than five years old were collecting the highest median payouts in the sector in 2019 ($2,576, and an average of $18,091 a claim). While the majority of the claims were for water damage – “plumbing leaks and failures” – in every year since 2015 (typically more than 66 per cent of claims) the value of those claims was relatively lower, representing 46 per cent of dollars claimed since 2017. But the BCFSA also found an outlier year in 2018 when more than 11,000 water claims came in, pushing water damage costs to 56 per cent in the value of claims.
As a result, the BCFSA said, in addition to premium hikes, insurers were raising deductibles, which between 2019 and 2020 rose 124 per cent overall in high-rise buildings, and up 96 per cent for water damage. In condos, the water damage deductibles leapt 135 per cent in the same period.
“It’s a fair comment to say premiums would be higher compared to five years ago … we’re just seeing more claims,” said Rob de Pruis, national director of consumer and industry relations for the Insurance Bureau of Canada. He cautions that not all the rise in premiums has been related to water; replacement costs are also up because of the rising high-rise apartment values and the overall costs of construction and material. “They just are costlier, even the finishings inside are typically a lot higher scale,” he said.
Still, a 2021 report from the accounting and consulting firm Deloitte found the changes in rates and deductibles were having their desired effect, and projected insurers in B.C. would soon stop paying out almost every dollar they collected in condo insurance. As Deloitte noted, most water damage claims are not from catastrophic failures: they come from washing machine overflows, or sink plumbing failures, or even in-suite heating and cooling units that use water. Raising deductibles pushes smaller, less severe claims off the insurer’s books, and as the Deloitte report noted, the lack of building-wide coverage “may also encourage unit owners to purchase individual insurance coverage to protect against potential losses due to deductible payouts.” Deloitte’s survey of insurers projected these cuts to coverage and rise in prices could lower the premium-to-claim ratios significantly, perhaps from 100 per cent to 80 per cent.
While Mr. Webb said Concord Pacific has had no catastrophic leaks at its recent projects, it will nevertheless take the six projects it has under construction or soon to begin and add in a series of mitigation measures. The list of changes includes high-tech ideas such as water sensors in the elevator shafts and on the main pipes as well as automated shut-offs that will rapidly notify building managers and give them the option to shut down in the event of a sudden surge in water.
Others are more physical, such as adding grading to the elevator lobby to direct water away from elevator shafts and recessing into the ceiling the fire-system sprinkler heads so they are less likely to take accidental damage and be set off through negligence. “We have seen people that hang laundry on these things [sprinkler heads],” Mr. Webb said. “It’s incredible what people will do … A sprinkler can release 60 gallons of water a minute.”
Mr. de Pruis cautioned that while every high-rise has a different set of local conditions that go into determining the insurance rates, he thinks Concord’s moves could be positive. “Any type of mitigation will have a positive effect over the long term, in reducing or mitigating claims costs,” he said.
Concord’s upfront costs for the water mitigations are pegged at about $1-million a building (which will not be passed on to preconstruction buyers who have already purchased units), but the savings down the road for condo owners could be well in excess of that.
“By putting these things in, it will probably change the industry standard,” Mr. Webb said. “I have heard from some other developers already, asking how much did I just increase the cost of their buildings.”
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