The Province has introduced legislation as “first steps” to address rising strata insurance costs after the release of an interim report by the BC Financial Services Authority that detailed issues underlying the rising costs. The BCFSA will be releasing a final report in the fall of 2020, and further regulatory changes may occur following stakeholder consultation.
Through amendments to the Strata Property Act and Financial Institutions Act, the Provincial legislation would:
- end referral fees between insurers or insurance brokers and property managers or other third parties;
- set out guidelines for what strata corporations are required to insure;
- require strata corporations to inform owners about insurance coverage, and provide notice of any policy changes;
- allow stratas to use their contingency reserve fund when necessary to pay for unexpected premium increases; and,
- protect strata unit owners against large lawsuits from strata corporations if the owner was legally responsible for a loss or damage through no fault of their own.
The legislation also enables potential further regulatory changes such as identifying when stratas are not required to get full insurance coverage, strengthening depreciation reporting requirements, and changing minimum required contributions to a strata’s contingency reserve fund.
As detailed in the interim BCFSA report, premiums have risen on average by approximately 40% throughout the province on a year-over-year basis, with 6% of properties seeing increases in excess of 100%. Initial findings indicate a number of potential underlying factors, including:
- insurer losses from minor claims due to poor building maintenance practices and initial construction quality issues;
- new building construction and building material changes, and rising replacement costs; and,
- increasing reinsurance costs for earthquake risk.
The report also notes that price pressures are expected to continue, and that there is not enough capacity in the strata insurance market to support expected future demand. Currently nine or ten companies that are mainly headquartered outside of Canada provide significant capacity in BC, and the BCFSA suggests that “It is quite possible that capacity will contract further rather than increase” due in part to pressure to reduce exposure to BC earthquake risk and improve profitability. Overall, the BCFSA describes the strata insurance market as being “unhealthy” and not profitable for the insurance market. The BCFSA plans to release a final report in the fall, following engagement with industry stakeholders.