The Evolution of Condominium Insurance: From routine to obstacle course
In a softer market, the average renewal process for a condominium corporation was routine. It would include a review of any updated documents such as the reserve fund study, replacement cost appraisal, Directors & Officers Liability application and financial statements. A discussion would take place on recent claims and how to learn from losses. Following this, the broker would seek out the best coverage available from one of many interested insurance companies. The red flags that might stand out to an insurance company would be inadequate funding of reserves as recommended by the study, a high ratio of rentals to owner occupied units or repeated claims of the same type. We would typically see surcharges put in place or increased deductibles as a result of said red flags.
Now what does a renewal look like in this hard market? A market harder than many insurance or condominium management professionals have ever seen?
The review of all the necessary documents as noted above is still completed, but the insurance companies are required to consider a greater number of potential red flags than in the past. The age of the buildings and building components such as wiring, electrical and plumbing are a consideration as well as the presence of aluminum wiring and/or fuses within units. A new task put on Condominium corporations built prior to 1985 is to provide update information for components within the unit themselves. These components are not often the Corporation’s responsibility nor is this information part of the corporation’s records.
Putting the buildings themselves aside, the issue of claims history is now the biggest challenge for a renewal. The five-year claims experience of a Corporation will ultimately determine whether an insurance company will be able to provide capacity or at what rate it will be available. In most situations, multiple claims or large losses are red flags to insurance companies, resulting in the Corporation landing outside of their underwriting appetite altogether.
So what can a Corporation do to make it through the insurance obstacle course with the most success? Start the process earlier. Connect with your broker and ask the necessary questions to ensure you and your fellow unit owners are aware of the potential challenges of the next renewal. If the buildings are getting older, perhaps a plan to undergo updates within units over a certain period is worth discussing. If there are recent claims, possibly another look at risk management within the property is in order.
Whether a routine renewal or an obstacle course, the importance of the relationship between the Board, Manager and Broker remains the same. Communication is key and all parties working together will assist in the best possible outcome for the Condominium Corporation.
Tricia Baratta (R.I.B. Ont.)
Account Executive – Commercial Insurance