The Government of British Columbia says it is taking action to help stratas better mitigate the rising costs of insurance.
Actions include bringing more transparency to the strata insurance industry, closing loopholes related to depreciation reports, ending referral fees paid to property managers and giving strata owners and corporations the tools they need to do their part, a Ministry of Municipal Affairs and Housing media release stated.
“The rising cost of strata insurance is a major financial pressure facing thousands of British Columbians during an already challenging time,” said Carole James, Minister of Finance. “This is an extremely complex issue playing out in the private insurance industry, but that doesn’t lessen our government’s commitment to doing what we can to make the situation better. Everyone has a role to play in returning the market to balance and today our government is taking a first step, with the understanding that we will take further action as needed.”
Through amendments to the Strata Property Act and Financial Institutions Act, as well as associated regulatory changes, the government will:
* end the practice of referral fees between insurers or insurance brokers and property managers or other third parties;
* set out clear guidelines for what strata corporations are required to insure to help strata councils make informed decisions on their insurance policies;
* require strata corporations to inform owners about insurance coverage, provide notice of any policy changes, including increasing deductibles, and 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, but through no fault of their own.
The legislation also paves the way for the government to make further regulatory changes to:
* identify when stratas are not required to get full insurance coverage;
* strengthen depreciation reporting requirements, including limiting the ability to use existing loopholes in the legislation to avoid completing depreciation reports;
* change the minimum required contributions made by strata unit owners and developers to a strata corporation’s contingency reserve fund;
* require brokers to disclose the amount of their commission, which has been reported to be at times in excess of 20%; and
* strengthen notification requirements to strata corporations of changes to insurance coverage and costs, or an intent not to renew.
These regulatory changes will be made after further consultation with strata community stakeholders.
“We understand the difficulty people living in stratas face when they experience a large increase in insurance costs or have challenges finding insurance at all,” said Selina Robinson, Minister of Municipal Affairs and Housing. “This legislation is a first step to help strata corporations now as we continue to work on this complex issue. I look forward to the BC Financial Services Authority’s final report in the fall, which will help identify further actions government can take to support people living in strata properties.”
Government’s actions were guided in part by input from key stakeholders, including Condominium Home Owners Association of BC; Vancouver Island Strata Owners Association; Insurance Brokers Association of BC; Insurance Bureau of Canada; Insurance Council of BC; Office of the Superintendent of Real Estate; Real Estate Council of BC; Mortgage Brokers Association of BC; BC Real Estate Association; and the interim report of the BC Financial Services Authority.
The Ministry of Municipal Affairs and Housing and the Ministry of Finance will also review the final report from BC Financial Services Authority in the fall to determine what further changes the government can make to help lower strata insurance costs for people.
Over 1.5 million people live in strata housing in B.C.
At the direction of the minister of Finance, the BC Financial Services Authority released its interim report on the rising cost of strata insurance in British Columbia on June 16, with a final report expected in fall 2020.
The report found that premiums have risen by approximately 40% throughout the province on a year-over-year basis, with deductibles experiencing up to triple-digit increases over the same period.
The BCFSA is the regulator responsible for the private sector insurance industry in British Columbia.
Edited for ILSTV
By Tara Deschamps
THE CANADIAN PRESS
TORONTO _ Canadians looking to borrow money for a home purchase a home are in for some extra challenges after the Canada Mortgage and Housing Corporation announced changes to its lending standards on Thursday.
The country’s national housing agency is increasing the qualifying credit score for mortgage insurance to 680 from 600 and limiting gross and total debt servicing ratios to their standards of 35 per cent and 42 per cent, respectively.
“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” CMHC head Evan Siddall said in a statement.
“These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”
Under the changes effective July 1, CMHC will also no longer treat non-traditional sources of down payment funding, such as a personal unsecured line of credit, as equity for insurance purposes.
It will also suspend refinancing for most multi-unit mortgage insurance.
The move comes just weeks after Siddall appeared before the Standing Committee on Finance in Ottawa to warn of trouble ahead for the housing market.
‘Our support for homeownership cannot be unlimited,” he said.
“Homeownership is like blood pressure: you can have too much of it. Housing demand is far easier to stimulate than supply and the result, as we’ve seen, is Economics 101: ever-increasing prices.”
The majority of mortgages insured by the CMHC will not be affected by the more stringent qualifications.
In the fourth quarter of 2019, the average debt servicing ratios were well below the 35 per cent and 42 per cent thresholds, and depending on the metric, between 63% and 82% of all qualifying mortgages were below the limit.
Spokesperson Leonard Catling said the changes “were not made because of our current book of mortgage insurance business, rather to maintain its integrity.
“High household indebtedness continues to be a concern and the COVID-19 pandemic has exposed the long-standing vulnerabilities in our financial markets.”
The CMHC forecasts a decline of between nine per cent and 18 per cent in average house prices over the next year because of higher mortgage debt and increased unemployment.
Siddall warned the finance committee a growing debt deferral cliff could be headed Canada’s way in the fall, when some jobless Canadians will need to start paying their mortgages again after deferrals run out, and as much as one-fifth of all mortgages could be in arrears if the economy has not recovered sufficiently, he warned.
“We need to avoid exposing young people and through CMHC, Canadian taxpayers to the amplified losses that result from falling house prices,” he said.
“Unless we act, a first time homebuyer purchasing a $300,000 home with a 5 per cent down payment stands to lose over $45,000 on their $15,000 investment if prices fall by 10 per cent,” he said.
This report by The Canadian Press was first published June 4, 2020.
The excerpted article was written by Meera Jain, Raman Johal and Samantha Ip
Clark Wilson LLP
The COVID-19 global pandemic poses an unprecedented risk to public health and safety and has already had a tremendous impact on our economy, forcing businesses to close, projects to shut down, and creating new liability exposures. Consequently, businesses and insurers have many questions regarding policy wording and insurance coverage relating to COVID-19. Will a commercial policy respond to cover business interruption losses? Will a builders’ risk policy respond to inevitable losses from project closure and delay? Will an employment practices liability policy cover potential lawsuits commenced by an employee alleging negligence for exposing the employee to COVID-19? Will a directors and officers policy respond to potential claims against senior management by shareholders or investors arising from corporate decisions made in response to COVID-19?
To answer these questions, the Clark Wilson Insurance Group is presenting a series of articles through its COVID-19 INSURANCE SERIES. In this article, we address whether the “unoccupied exclusion” contained in most homeowner insurance policies will be triggered if a homeowner is caught somewhere due to travel restrictions or other circumstances and his or her home ends up being unoccupied for more than thirty days.
Will the Vacancy Exclusion Operate to Exclude Coverage in the Context of COVID-19?
The COVID-19 global pandemic has resulted in serious restrictions on how we go about our day-to-day lives has led homeowners and insurers to raise questions about policy wording and insurance coverage related to COVID-19. What if a homeowner is unable to travel home from Peru or must have treatment in hospital due to COVID-19, resulting in an unoccupied home for more than 30 days?
The Unoccupied/Vacancy Exclusion
An insurer is entitled to know how a premise is being used. A vacant or unoccupied home presents a different risk than one that is being occupied. To put it simply, if a home is not occupied, there is higher risk that property damage can occur from an insured peril such as fire, flood of theft. As such homeowner policies will contain what has been coined as the “vacancy exclusion” to allow an insurer to deny a claim if the claim occurred during more than a certain number of days of vacancy.
Most homeowner policies will differentiate between a vacant and an unoccupied home. A vacant home is one where the dwelling is not furnished for normal habitation or the occupants have moved out with no intention to return. An unoccupied home is one that has not been lived in for thirty consecutive days. Most insurers will require that a homeowner notify them if the home is being unoccupied or vacant to allow the insurer to amend the terms and condition of the insurance policy if necessary. A failure to comply with this notice condition may result in an insurer denying coverage for a claim or voiding the policy altogether.
The COVID-19 travel restrictions and, in some countries, travel bans, may have made it difficult or impossible for homeowners to return to their homes. Worse yet, a homeowner may have to undergo treatment in hospital for more than 30 days, leaving a home unoccupied. A homeowner is required to notify its insurer if they are unable to return to their home after being away for more than thirty days, or if they may be in treatment for that amount of time, even if that absence was the result of a COVID-19 factors. A failure to notify their insurer may result in the insurer denying coverage for a claim that occurs during their absence.
Failure to Report an Unoccupied Home is Not a Material Change in Risk
Statutory Condition #4 of the Insurance Act requires that insureds report any material change in risk to their insurer, failing which an insurer can void the policy ab initio (as if it never existed). The statutory condition is in all homeowner policies. Consideration of the occupancy exclusion is separate from a consideration of material change in risk which would allow underwriters to void a policy ab initio. Change in the state of occupancy is likely a material change in risk but requires knowledge and control on the part of the insured, such as renting the home to tenants when it was stated to be occupied by the homeowner. However, failing to report that a home is unoccupied during the 30-day period has been deemed not to be a breach of the requirement to report a material change in risk.
Unjust Contract Provision May Prevent Insurers from Relying on Vacancy Exclusion
Section 32 of the Insurance Act contains an unjust contract provision which would likely prohibit an insurer from excluding coverage or voiding a policy ab initio if the underlying reason for triggering the unoccupied exclusion or the statutory condition related to material change in risk were caused by COVID-19. Section 32 provides that:
- if a contract contains any term or condition… that is or may be material to the risk, including, but not restricted to, a provision in respect of the use, condition, location or maintenance of the insured property, the term or condition is not binding on the insured if it is held to be unjust or unreasonable by the court before which a question relating to it is tried.
If a homeowner is forced to go to court to enforce coverage against an insurer that has denied coverage due to the occupancy exclusion, the homeowner may rely on s. 32 to argue that it would be unjust or unreasonable for the insurer to enforce the occupancy condition given the COVID-19 travel restrictions. The application of s. 32 has not been tested in the context of a global pandemic such as COVID-19 but we expect that a court will afford a homeowner some leniency in failing to comply with the strict notice requirements under a policy if they are prevented from returning to their home due to the COVID-19 travel bans. With that said, homeowners should take precautions when leaving their home unoccupied for an extended period of time to avoid a potential loss, such as asking a friend or neighbor to visit the home every few days.
We do not recommend that insurers make any blanket policy changes or broad communications about the enforcement of the “unoccupied exclusion”. Rather, each claim should be considered on its own as coverage depends on the circumstances of each case and the specific policy wording. Any blanket policy change or broad communication may have the unintended consequence of estopping insurers from relying on the vacancy exclusion as it can be regarded as having waived its right to do so.
Commercial insurance policies may also contain similarly worded vacancy exclusion clauses. The above analysis would equally apply to any species of policy containing similar clauses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Jeremy Hainsworth | Richmond News
Uninsured condo owners could find themselves bankrupt and homeless if they don’t maintain their suites and personal insurance as strata insurance costs skyrocket, said the Condominium Home Owners’ Association of B.C.
The cost of catastrophes, construction, claims and reinsurance has pushed insurance premiums on many British Columbia strata corporations, or condo owner groups, through the roof.
The concern for individual owners is not having their own suite insurance to handle unforeseen crises, said association executive director Tony Gioventu.
If something from a suite causes damage to common property, the suite owner would be responsible for the deductible of the corporation, he said.
Korecki Real Estate Services Inc. manages 7,500 strata units in dozens of Lower Mainland buildings. Of the strata corporations that have recently renewed their insurance, around 90% saw premium increases of 50-100%, Korecki property manager Mike Alavi said. “We saw half of the stratas get hit on December 31, and the other half are going to get hit on April 30,” Alavi said.
Those jumps are above the Insurance Bureau of Canada’s provincial average of 35%, but below some of the jaw-dropping 300-600% increases Gioventu has heard of.
And, with building insurance rates soaring, so are deductibles, payments an individual could find themselves responsible for.
“Those deductibles are no longer $25,000,” Gioventu said. Instead, an owner could face a bill ranging from $100,000 to $750,000.
A problem, Gioventu said, is many people no longer face the condition of insurance for a mortgage once the latter is paid off. And some don’t reinsure, leaving themselves vulnerable.
Moreover, some don’t maintain their suites, leaving themselves open to huge bills if something goes wrong.
“I am amazed at the number of people who don’t purchase homeowner insurance when they live in condos,” Gioventu said.
He cited an issue of people hanging clothes from fire sprinkler heads.
“These types of claims can easily reach $1 million,” he said.
“You could lose your home.”
Gioventu also stressed the need for strata corporations – especially those in aging structures – to be proactive in maintaining their buildings. Neglect is a recipe for incurring a claim that will make reinsurance harder and more costly, he said.
He said some stratas have received insurance notices with massive increases the day before they are due.
“We have stratas that are in a real crisis,” he said.
Gioventu stressed the importance of depreciation reports that can point a strata corporation toward future problems that should be planned for. But, he said, the provincial government has allowed corporations to opt out of such reports, leaving inspections neglected and planning not done.
“The object is to make sure properties are being maintained or repaired,” he said. “They are restricted by what the owners won’t pay for funding.”
Part of that, he explained, is that strata councils need to remember “ they are a board of directors of a company and [they should] behave like that.”
And, that would make getting insurance harder as claims rise.
“The strata is going to end up paying the cost,” he said. “It could potentially end up bankrupting a community.”
Gioventu said the government has a role in mitigating the problems condo owners face.
One plan might be for government to amend legislation to allow stratas to negotiate insurance fee charges.
Source: Glacier Media
Saskatoon / 650 CKOM
For those homeowners looking to recharge their inner batteries, thaw out and start Googling exotic vacation spots, SGI Canada is reminding them to hold on and double-check their home insurance checklists.
Western Canada’s current cold spell is an example of weather that can take a nasty, damaging toll on one’s home.
“We do see an increase in claims activity when the temperature plummets like this,” said Kurtis Reeder, the company’s senior director of personal lines underwriting.
“Two of the more prevalent claims are water escape due to water freezing in pressurized lines, and then expanding, breaking the pipes, and causing a lot of water damage in the home.
“The second one is due to fire. With the increased use of heating appliances in the cold, there is an increased risk of fire caused by the heating appliances.”
He recommended homeowners check with their insurance brokers as to the conditions their policies have for coverage when they’re away on vacation.
For example, SGI Canada’s policies say that if an owner is away for 10 days or more, they have to have someone check on their home daily, shut off the water supply to the house and drain the pipes or have a home security company monitor temperature decreases, he said.
Otherwise, the policy isn’t valid.
“Every company has similar conditions, but they could be a little bit different,” Reeder said.
Water pipes can freeze and burst if a door or window is left open over a long period, or a home’s furnace shuts down and can’t fire back up, he said.
Even for people planning shorter getaways, Reeder recommended someone checking on the home every day, picking up the mail and turning on different lights inside.
Those are deterrents to potential thefts and break-ins.
He also offered some digital advice: Avoid posting photos and travel updates on social media until the vacation is over.
“Share those pictures and your travel stories when you return and not while you’re on vacation, because it could make yourself a target for theft,” he said.
Reeder said SGI Canada’s website and social media feeds regularly post updated home and travel insurance and online security tips.
Saskatoon / 650 CKOM
Ross McLaughlin, CTV Vancouver
Condo owners are bracing themselves as strata councils try to renew insurance coverage.
“It’s going to be a shocker,” said Tony Gioventu, executive director of the Condominium Home Owners Association of B.C.
Some strata buildings are facing increases from 50 per cent more to three times as much as last year.
“We came across a development last week where the policy has increased from $300,000 to $1.2 million,” said Gioventu.
Property management companies are warning strata councils to be prepared, with one report of a building with an insurance premium increase of nearly 700 per cent.
Deductibles are also expected to increase anywhere from $100,000 to $500,000 and beyond.
“The deductible will certainly be a devastating blow to the financial reserves of these communities or to the cost of individuals,” said Gioventu.
Impact on condo owners
Higher premiums will affect owners’ monthly strata fees – and homeowners could see a 20 per cent increase, or more.
Individual condo owners may also have to carry the full load of an insurance claim. Consider an instance where a condo owner gets distracted while filling the bathtub and it overflows, damaging several units below.
“It’s very possible individual owners are going to find themselves liable for these high deductibles if they’ve been responsible or the cause of these claims,” he said.
That could happen if the total damage is $140,000 for example on a policy with a $150,000 deductible. The strata may decide not to file a claim leaving the owner responsible for the damage on the hook.
And in the event that a strata does file a claim and there’s a high deductible, it will be spread among all condo owners. Gioventu urges many condo owners to buy homeowners insurance, which often covers strata deductibles. However, it’s difficult to find any insurance companies that offer homeowner’s insurance to cover strata deductibles above $50,000 for individual owners. So if any of your share of the strata deductible goes above the limit covered by your homeowner’s policy, you’d have to pay it out of pocket.
Not all condo buildings across the province will be affected in the same way. Some may see little or no increase. The hardest hit will be large expensive buildings, those that have had several claims in recent years and those strata councils that haven’t kept up with maintenance and repair, resulting in a higher risk of claims.
Why is it happening now?
“Some insurers are really re-evaluating their underwriting criteria and their risk appetite,” said Rob de Pruis, director of consumer and industry relations for the Insurance Bureau of Canada.
He’s says there are about 65 commercial insurers in B.C. and not all of them offer insurance to strata corporations.
Gioventu says B.C. has fewer companies offering strata insurance than in other provinces, reducing competition.
Also catastrophic events like B.C. wildfires and flooding hasn’t helped – but it’s not just events happening here that have an impact.
Climate change is considered a factor in several extreme weather events, like wildfires and flooding in California, hurricanes on the East Coast, and the major flooding Alberta experienced in the last decade.
The global impact of catastrophic coverage affects insurance rates in Canada too. Some Canadian companies buy that coverage from global insurers. It’s called re-insurance.
“And because of that, that may also factor in to the premiums for different corporations and commercial entities across Canada,” added de Pruis.
According to the Insurance Bureau of Canada, years ago insurers would pay out about $500 million annually in Canada. In 2018 they paid out about $2 billion and that risk is being passed around.
“This really disperses the liability away from the corporation and down to the individual owners,” said Gioventu.
Source: CTV Vancouver News