In recent years, we navigated a challenging insurance environment known as a “hard market”. This term describes a period when multiple factors make it more challenging to secure and maintain suitable insurance coverage. In essence, the insurance companies were paying out more in claims than they were collecting in premiums.
To counter this situation, insurers adopted a more cautious underwriting process, resulting in increased rates and additional or more stringent requirements on condominium corporations during the renewal process, and fewer insurance companies participating in the condominium space altogether. In practical terms, a hard market often translated to increased premiums, stricter underwriting criteria, and a diminished selection of insurance choices.
Due to the hard market, many condominium corporations faced substantial premium increases that exceeded their budgeted insurance expense, along with higher deductibles that necessitate covering more losses from their own pockets.
The significance of the broker-board relationship was emphasized during the hard market, as brokers played a pivotal role in providing advance notice of premium increases for budgeting purposes, educating the board and manager about rising premiums, offering strategic claims service, and advising on proactive risk management.
Present realities: a mixed bag of progress and challenges
We are currently witnessing some improvements in pricing. The insurance market overall has begun to soften slightly, offering a ray of hope for condominium corporations seeking more manageable premiums. Deductibles, once on a continuous upward trajectory, are now stabilizing, with the exception of increases in response to claims.
The increasing costs of materials and labour have highlighted the importance of replacement cost appraisals to ensure adequate property insurance coverage is in place. These appraisals, if not completed from time to time, often reflect significantly higher values that the existing property limits; this results in a corresponding increase in overall premium.
A corporation’s declaration may specify a timeframe for how frequently an appraisal must be conducted but the wording is often vague and open to interpretation. While appraisals can potentially lead to higher premiums, they also serve the crucial purpose of ensuring that corporations maintain sufficient coverage, reducing the likelihood of having to cover additional costs out of pocket in the event of a large claim.
Insurance renewals for aging buildings now include a requirement to provide information about heating, electrical and plumbing components within the individual units, specifically focusing on their age and condition. These components are typically the responsibility of the unit owners for repair and maintenance, and as a result, the condominium corporation often lacks records for these components.
The presence of aluminum wiring, fuses, galvanized plumbing, and aging water heating and furnace equipment all contribute to an increased perceived risk for a building. As a result, buildings 40 years of age and older are asked to provide proof of proper maintenance or updates of these components prior to receiving renewal terms. Conversely, brand-new constructions are considered riskier due to potential component failures, demanding greater scrutiny during the underwriting process.
Future expectations: the road ahead
As climate change increasingly influences our weather, there will continue to be a heightened focus on the geographical areas where flooding, wind, and fire risks are higher.
Condominiums located in vulnerable zones may face increased premiums and stricter coverage terms related to their geographic location.
The availability of municipal fire protection services will be under close scrutiny, impacting insurance pricing for those properties considered to be “unprotected” or without fire services within close proximity.
Insurance companies will continue to emphasize updates to electrical, plumbing and heating components within the units. Timely maintenance and improvements will play an important role in securing favourable coverage terms and avoiding delays in the renewal process.
Compliance with reserve fund studies will be closely monitored. Condominiums that update and follow the reserve fund study demonstrate financial responsibility and the commitment to preventative maintenance and repair parameters set out in both the insuring agreement and the Condominium Act.
A frequently overlooked aspect of insurance costs is reinsurance, which can be viewed as insurance for insurance companies, serving as a safety net that allows them to distribute the risk of substantial losses. It is important to work with insurance companies that possess a reinsurance relationship and strong financial standing, as indicated by their rating on the AM Best Rating Scale. This rating offers insights into the insurer’s financial strength, ensuring their ability to effectively fulfill indemnity obligations in the event of a catastrophe.
Continue to do things right
In addition to adapting to changing insurance landscapes, condominium corporations can continue doing several things right while adding on their current risk management programs:
✓ Preventative Maintenance Programs: Continue programs for leak detection, dryer vent/duct cleaning, and fire safety planning. These programs remain crucial in helping to prevent losses and reduce the risk of insurance claims while providing evidence of continued risk management.
✓ Learning from Losses: Analyzing the reasons behind previous claims can assist in developing strategies to prevent similar incidents in the future. When multiple claims of the same nature occur, it signals the need to review current risk management practices. During the renewal process, the insurance company will likely seek assurances regarding plans to address and improve the situation.
✓ Collecting Information on Heating Systems and Water Heaters: Gather information on the age and condition of these components within the units. This data can assist insurers in assessing the risk and pricing coverage accordingly. A property with proof of newer components within the units can potentially be viewed as “updated” by the insurance company and premium savings may be possible.
✓ Inspect Old Wiring: Have a professional conduct an inspection of aluminum wiring and follow through with any recommendations made. To minimize the risk of fire, any improper connections between copper-rated fixtures and aluminum wiring must be correct and documented.
✓ Choose a Condominium Broker: Collaborating with a specialized insurance broker is of utmost importance. Condominium specialists possess expertise in the distinct challenges and requirements of condominium corporations, making them an invaluable source of advice and support throughout the policy term.
Tricia Baratta, R.I.B. (Ont), LCCI, is a commercial insurance professional at Gallagher and president of CCI London and Area.
