According to a recent article in the Globe and Mail, shoddy construction, rising claims for water damage and inadequate regulation is leading insurance companies to refuse to insure condominium corporations. In the meantime, premiums and deductibles are skyrocketing. Not just in Vancouver: in Toronto and in Ottawa too. Worse, in some cases, condominium corporations are left to self-insure.
Unless the new Condominium Act addresses this situation, it is not likely to get any better. So, what can condominium corporations do to keep their insurance record in check?
The best protection is, of course, prevention. Less claims should keep the corporation’s insurance record healthier. However, the sad reality is that an insurable event will inevitably occur… eventually, somewhere.
Condominium corporations can also protect themselves by adopting a standard unit by-law and/or an insurance deductible by-law.
- A properly drafted standard unit by-law can shift onto the owners (and their insurer) part of the responsibility to insure and repair a unit. Indeed, at the risk of overly simplifying things, the owner is usually responsible to insure and repair his/her improvements to the units. By adopting a standard unit by-law expanding what is considered to be an “improvement”, the corporation reduces its exposure, cost and risk. It is usually financially better for a corporation to have individual owners assume the cost of insuring their units rather than to have the corporation do it because owners are insured throughresidential coverage, as opposed to commercial insurance coverage. The residential insurance market is far more competitive, flexible and affordable.
- When all fails, the insurance deductible by-law will shift onto the owners (and their insurer) the cost of paying the corporation deductible. This will further preserve the corporation’s insurance record and, inevitably, reduce the number of claims done at the corporation level. The corporation’s deductible is just like the deductible you may have on your car insurance. When you make a claim, you are responsible for the deductible. The amount of the deductible varies based on the insurance coverage you have. The same is true for the insurance coverage obtained by the corporation. Some deductible can be quite high. Since many claims may fall below the corporation’s deductible, the corporation often does not have to turn to its own insurance. In such cases, the owners would then turn to their own insurer to cover the repairs.
Of course, the trick is to ensure owners are properly informed about the pros and cons of adopting such by-laws. The last thing you want is for an under-insured owner to be stuck paying for repairs to his/her unit.
It is time to have a healthy discussion with your owners, your insurers and your lawyer about these issues before the next claim or before your insurer decides your corporation is no longer insurable. Fix the roof on a sunny day…