The Rising Cost of and Availability of Compulsory Strata Corporation Insurance in British Columbia

The rising cost of insurance cost and higher deductibles has recently been reported in the media. What has not yet been reported is a situation facing some strata corporations whose insurance companies are refusing to offer renewal terms.

Insurance brokers began cautioning their clients that a hardening of the insurance market was occurring late in 2019. The number of insurers willing to provide insurance to strata corporations was decreasing. The combined ratio (dollars paid by insurers in costs / dollars earned from premium) across the strata sector was approaching 105%. This means that for every dollar earned in premium, insurers pay out $1.05 in costs. The problem has been made more difficult due to the low interest rate environment and the natural disasters which have or are occurring globally.

Factors defining the hard insurance market has resulted in substantial increases in the cost of strata insurance, much higher deductibles and increasingly, is impacting some strata council’s ability to obtain insurance.

Strata corporation property insurance is typically provided on a subscription basis, meaning that no one insurer assumes 100% of the risk. An insurance broker is hired by a strata corporation and approaches multiple insurers for the purpose of negotiating their agreement to take on or subscribe to a percentage of the total risk.

The hard insurance market has resulted in some insurers refusing to offer renewal terms to insurance brokers on expiring strata corporation policies. This is particularly evident at properties with poor claims histories, those with deferred maintenance and containing materials considered to be higher risk (those with aluminum wiring for example).

Councils trying to procure insurance from more than one insurance broker can find the situation more difficult because of the complicated relationships insurers have with their brokers. An insurer typically will provide only one quote on a single property to an insurance broker. It will not provide a second quote on the same property to different broker. In a hard market, councils approaching multiple insurance brokers for proposals may find that no single broker is able to obtain 100% of the required coverage. This is because those brokers share the same insurer markets.

Section 149 of the Strata Property Act a strata corporation is required to insure the common property and common assets of the strata corporation on the basis of full replacement cost. This insurance is compulsory in British Columbia.

Mortgage companies typically require the strata corporation to be insured when they grant a mortgage on a strata lot to protect their collateral. In the event of a loss, the mortgage company is named as a loss payee on the strata insurance policy. It is conceivable that strata lot owners at strata corporations without insurance could find their lenders unwilling to grant or renew mortgages on strata lots if the strata corporation does not have insurance.

Provincial legislation requires strata corporations to have compulsory insurance, but there does not appear to be any current legislation compelling private insurers to provide insurance to a strata corporation. The situation faced by some strata councils who are unable to obtain insurance for their strata corporation seems quite impossible. A solution would appear to require the intervention of the provincial government through a change in the legislation.

If private insurers are charging excessive rates with unreasonably high deductibles or are unwilling to insure some strata corporations, perhaps the provincial government should go into the strata insurance business to provide the compulsory insurance. A similar situation existed in 1973 when private auto insurers were either charging exorbitant rates or were unwilling to insure some motorists who were then driving without any insurance. That situation was not in the best interest of the population and resulted in the NDP government at that time creating the Insurance Corporation of British Columbia (ICBC), a provincial crown corporation whose mandate is to provide universal and affordable compulsory auto insurance.

What does a strata council do now when faced with a situation of being unable to obtain insurance for the strata corporation? Seek legal advice immediately.

They may also wish to ask their MLAs about how they can obtain the required compulsory insurance.

This article is intended to promote discussion amongst readers. It is not intended as legal or insurance advice. The reader is cautioned to seek independent advice about insurance from their own legal and insurance professionals.