Condominium Insurance: Market Crisis or Market Correction?

Tom Gallinger, BBA, FCIP Vice President - Atrens-Counsel Insurance Brokers part of Arthur J. Gallagher (Canada) Limited

If you live in a condo, sit on your condominium board, or are employed as a professional condominium property manager in the Province of Ontario, then you have likely heard the noise over the past twelve months regarding condominium insurance, especially as it relates to increased premiums and increased deductibles.

There is no doubt that condominium corporation insurance has been impacted in the area of pricing and deductibles right across the country. Depending on which province you live in, the impact can fluctuate significantly. While there are some commonalities, the differing condominium legislation, construction practices, weather patterns, and catastrophe exposures can pose vastly different challenges for condominium consumers across the country when purchasing their mandatory insurance coverage. For the purposes of this article, my comments are contained to the Ontario marketplace where I practice as a condominium insurance broker. The impact to the corporation’s insurance program at the time of renewal can vary considerably depending on construction details, location, historical pricing level, claims history, and other risk factors underwritten by the major insurance companies. The obvious question heard from condominium boards upon receiving their renewal is “Why is this happening?” The simplified answer is that the general insurance marketplace is entering a “hard market” cycle. This kind of market cycle has happened in the past and usually occurs following a prolonged period of intense competition among insurers. When insurance company pricing is too low for too long

it can threaten their profitability. In this instance, the low pricing coupled with an unanticipated increase in the frequency of natural catastrophes (windstorms, flooding, extreme weather, etc.) has led the majority of Insurers to experience consistently poor loss ratios that are ultimately unacceptable to their shareholders.

Everyone knows that insurance companies are in business to make a profit. When an insurance company does not make a profit, they need to fix the problem, and this is exactly what we are currently experiencing.

Insurance companies have selected and recognized Condominiums as just one of their most unprofitable “classes of business” and are either raising prices, raising deductibles, restricting coverage, or in some cases making the decision to no longer write that class of business altogether. Condominiums have generally been an unprofitable segment for most insurers for a number of years – meaning that for every premium dollar Insurers collect from condominium clients, they are paying out more than a dollar in claims and underwriting expenses. Unfortunately, all condominiums are guilty by association and are seeing some sort of increased pricing to account for the increased general risk factors to which all condominiums are exposed. We have, however, observed that condominiums with previous claims, or with risk factors that make them more likely to suffer a claim, are seeing far greater increases than the rest. Not unlike previous “hard markets”, the insurance industry needs to correct itself by establishing a better premiumcollected-to-losses-paid ratio. Unfortunately, because of the competitive nature of condominium insurance in the past, we are now in a state of correction. Believe it or not, if we were to compare an Ontario condominium unit owner’s insurance payments to that of a freehold homeowner with similar insurance limits, we would see a considerable premium advantage for the condominium unit owner. For example, if you own a freehold townhouse (not a condominium), you would purchase one policy, which provides coverage for all of your property including the structure, interior finishes, betterments, additional living expenses, and all your personal moveable property. If you compare that same townhouse, registered as part of a residential condominium, there are two policies in place: one covering the corporation and the units (up to standard unit definition) with the premiums being contributed by the owners through their common element fees; the other is purchased and paid for by individual unit owners to cover betterments, additional living costs, and personal property. On average, the costs of a condominium unit owner to maintain the two policies (corporation and unit owner’s) is approximately 30 – 40% less than the cost that the freehold townhouse owner would pay to insure his dwelling. While this number can fluctuate based on claims experience and other factors pertaining to the insured individual, all things being equal, the condominium unit owner still enjoys a significantly lower premium than a “noncondo” homeowner, even after some market correction in 2019.

What can your condominium community do in order to be what the industry refers to as “best in class”? First and foremost, start by engaging in meaningful discussion with your professional property management looking at preventative loss measures, maintenance issues, bylaw structure, and procedures in the event of a loss. Talk to your insurance broker about options, but be very careful about reducing important coverage for the sake of premium. Update appraisals in compliance with your declarations. In the event of a property loss, work with your broker to consider the impact before actually filing the claim. Unfortunately, this may be the new reality and it may be for some time. Budget accordingly and benefit from being “best in class”.

Tom Gallinger is the Vice President of Atrens-Counsel Insurance Brokers, a brokerage that specializes in managing insurance programs for condominiums, unit owners and property management professionals. Tom has been in the insurance industry for over 15 years in various underwriting, brokering and management roles. As a specialist in Condominium insurance, Tom strives to deliver a high level of service by managing the long-term insurance needs of his clients.

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