SOARING INSURANCE FEES FORCE NDP INTO ACTION
Finance Minister Carole James asked B.C.’s insurance regulator at the beginning of the year to look into why it was becoming so hard to obtain affordable coverage on strata properties.
“Work collaboratively with government, industry and other stakeholders to review issues related to the cost and availability of insurance for strata corporations,” said her Jan. 14 mandate to the B.C. Financial Services Authority.
“This issue is urgent, challenging and complex,” conceded James, when the B.C. Liberals pressed her about the unaffordable premium increases for the almost 1.5 million British Columbians living in strata properties of one kind or another.
“We are looking at short-term solutions that could assist owners now and long-term solutions as well,” pledged the minister.
But the industry was private and the rates unregulated. The financial services authority, having no database, had to proceed from scratch.
It planned to have a complete picture of the situation by the end of April. But not until Tuesday did it produce an interim report in the form of a five-page letter to James with the promise of more to come in the fall.
Still, the preliminary findings confirmed news stories by Postmedia News’ Dan Fumano, Lori Culbert and others, published as far back as February.
A 40 per cent increase in premiums across B.C. and 50 per cent in Metro Vancouver. Double- and triple-digit increases in deductibles.
Yet by averaging rate increases from some 6,000 strata properties of every kind, the authority understated the impact on large, multi-unit condos, which are being hit with the biggest increases. The main cost drivers were found to be largely the same as those in early, more anecdotal reports.
“Insurers are incurring losses mostly from minor claims, particularly those resulting from water damage, due to poor building maintenance practices and initial construction quality issues,” reported the authority. “The data gathered suggests that strata insurance has been used to fill the gaps where proper, ongoing maintenance practices have not been implemented.”
While older, poorly maintained buildings were one factor in pushing up rates, newer buildings were another.
“New building construction, building material changes and rising replacement costs have put further strain on industry profitability,” the authority found. “The average claims cost for buildings less than five years old was $18,000 compared to $10,000 for all ages.”
Some of those costs could have been charged to the new home warranty program, not off-loaded onto continuing insurance policies.
But the review found it was “often hard to determine whether the cause of the loss was from a construction defect or poor maintenance.”
Also giving pause to underwriters was the growing awareness of earthquake risk in B.C.
Bottom line: “Overall the state of the strata insurance market in B.C. is unhealthy. That is, a market that fails to meet the goals of sustainability, affordability and availability.”
The authority warned that the problem will get worse before it gets better.
“Despite large increases already being felt, the situation has not yet stabilized,” said the authority’s CEO, Blair Morrison. “Many stratas, particularly those in buildings considered to be higher risk by insurers, can expect to face further pricing pressures as well as the risk of not being able to obtain full coverage.”
At the outset of the review, the finance minister forecast that there would be “no quick fixes” and on that score the report didn’t disappoint.
“The underlying factors contributing to B.C.’s unhealthy strata insurance market are complex and do not present easy solutions,” Frank Chong, the authority’s deputy superintendent for regulation said Tuesday.
Nor were any solutions suggested, other than the possibility that the common industry practice of “best-term pricing” could be contributing to higher prices in B.C., “given that capacity is scarce and insurers are highly selective on risk.”
One thing that isn’t likely to work is putting the regulatory squeeze on the industry by capping premiums or deductibles.
Only nine or 10 companies retain any significant presence in the market in B.C. and there are only three main insurance brokers.
Global reinsurers have identified the province as “a high-risk market and the costs for reinsurance is affecting corporate decisions on where to allocate their capital.”
Far from attracting more competition to the insurance market, B.C. is in danger of losing some of the players it has, according to the authority.
“Given that insurers operate nationally and (most) globally, if they do not believe they can achieve profitability in the strata insurance market in B.C., they may exit the market completely, making it much harder or impossible to obtain this insurance for British Columbians.”
Still, the authority says that “all participants involved in this market have a role to play to return it to a healthy state.”
With that in mind, staff will spend the next few months in one-on-one meetings with representatives of industry, brokers and strata owners, managers and tenants to discuss “possible regulatory and industry solutions.”
A final report is due in the fall, meaning any legislative recommendations would be put off until 2021 at the earliest.
But the New Democrats, having promised to improve housing affordability, can’t afford to wait until the new year and another round of punishing premium increases for strata owners and renters.
James announced Tuesday that when the house sits next week, the government will announce some short-term relief while awaiting the final report in the fall.
Giving pause to underwriters was the growing awareness of earthquake risk in B.C.