This is a news item that has generated more questions than almost any other issue affecting real estate in Victoria. I had the chance to attend a discussion panel with various professionals in the strata space, who all share their opinions on the crisis.
From my copious notes, here are the top 10 things you should know about this panic:
- Insurance premiums are going up the most in buildings worth at least $50 million or those that have a lot of recent claims.
- These price increases will get worse before they get better. There is a market cycle in insurance that goes from a soft market to hard… and it’s just our luck that 2017 had enormous claims worldwide. (Remember all of those hurricanes and storms? The insurance companies are still paying for the cleanup and rebuilding.) The prevailing professional opinion seems to be that next year will be tougher, then things will go back to normal.
- The main items which impact your premiums are:
- Claims History
- Aging infrastructure. – building plumbing is only able to last a few decades before pipes start leaking and ending their service life.
- Deferred repair projects – It is not mandatory to follow a depreciation report, but failing to follow professional recommendations may increase your premiums.
- Significant replacement cost – If your building has a replacement cost above $50 million, you may struggle to find an insurer willing to take you on.
- If the strata doesn’t have enough money in their budget to pay for the insurance, they can charge a levy to all of the owners WITHOUT having them vote on it. Most other decisions require a community vote and a group decision… but insurance does not. Your Strata corporation is required to have such insurance in place and does not have to ask for permission in order to assess those levies or special assessments.
- High rise buildings represent a higher risk than a low rise because water can travel through many units in a tall tower and cause a lot of damage. In fact, high rise water damage claims represent 90% of all strata insurance claims.
- Buildings with carpet are a lower risk than building with engineered hard floors like laminate.. this is because carpets can usually be dried out, where hard flooring can be damaged enough to require replacement.
- When looking for a condo to buy, DO NOT just go with the one with the cheapest monthly strata fees… make sure they have healthy savings and a good track record for maintenance.
- If buying, make sure the building has insurance in place! Your bank may pull out of financing your deal if it is discovered the building is uninsured.
- If you already own a condo, encourage your community to reduce the number of claims they submit, work together to prevent water damage, consider a leak detection system or other measures which will reduce your claims and maybe even your premiums.
- Encourage all owners in your building to have a conversation with an insurance provider about the individual policy they carry on their individual units. As deductibles get higher and higher, it is a good idea to make sure you still have coverage!
The one thing you should do, today: Look at your insurance policy, call your broker, and find out if you are protected! Make sure you know the answers to the following questions:
- What is my water damage deductible?
- How much are my premiums?
- What does this policy cover?
- Make sure to document the answers, and ask for a copy of your policy cover letter, so you have the right info in case of a claim or if you want to sell your unit.
And as always, if you have questions about the insurance/condo/strata, I am always here to help solve your real estate quandaries.