Buyers Stepping Back, Insurance Already Chilling Market

[whatnext]

The provincial BC Financial Services Authority has released their interrim report on strata insurance:

B.C.s condo insurance market is 'unhealthy', says new government agency report
Author of the article:Lori Culbert

This province’s condo insurance market is unhealthy and has saddled owners with sudden increases of an estimated 50 per cent in Metro Vancouver, according to a three-month investigation by the B.C. Financial Services Authority.

“Our interim findings released today present a picture of an ‘unhealthy’ strata insurance market in British Columbia. That is, a market that fails to meet the goals of sustainability, affordability and availability,” Blair Morrison, chief executive officer of the FSA, said in a press release.

The Vancouver Sun has been documenting for months the financial plight of strata owners, who number 1.5 million in this province — or one third of B.C.’s population. After investing in homes in multi-unit developments, some of these owners have been hit over the last six months with massive insurance premium increases, big jumps in their deductibles, accompanying sharp rises in their strata fees and — in some cases — an inability to get full or partial coverage for their buildings....

...The FSA’s interim report found premiums had risen roughly 40 per cent across the province over the last year, and an average of 50 per cent in Metro Vancouver, with deductibles tripling for some owners. The data collected represents 6,000 condos, townhouses and triplexes, and reflects their insurance situation in late January and early February.

Earlier this month, The Vancouver Sun revealed the first statistical glimpse into this crisis, reporting that condo owners in Metro Vancouver were being forced to spend an average of 65 per cent more on insurance premiums in 2020...

https://vancouversun.com/news/politi...-29b657427c9f/

[a very long weekend]

Capping increases would lead to a wholesale exit from the market.

Building out a homeowner's insurance wing of ICBC could be an idea - but only if it were narrowly focused on the main homeowner issues. But if that works, then it stands to reason that there's a better, cheaper private solution out there: one of the major issues insurers have is that these companies are suffering crazy losses in all these other departments, and are making up the shortfall by raising premiums across industries.

What's stopping (possibly new) narrowly focused insurance companies from doing only housing and undercutting the competition?

There are things that could be done on the legal side to incentivize entry into this market, but none would be all that popular.

[rofina]

Originally Posted by a very long weekend

Capping increases would lead to a wholesale exit from the market.

Building out a homeowner's insurance wing of ICBC could be an idea - but only if it were narrowly focused on the main homeowner issues. But if that works, then it stands to reason that there's a better, cheaper private solution out there: one of the major issues insurers have is that these companies are suffering crazy losses in all these other departments, and are making up the shortfall by raising premiums across industries.

What's stopping (possibly new) narrowly focused insurance companies from doing only housing and undercutting the competition?

There are things that could be done on the legal side to incentivize entry into this market, but none would be all that popular.

Losses on residential portfolio have potential to be massive though, its definitely a risky business.

Trades are super expensive, buildings are ever more complicated, you have to contend with paying for hotels, in case of fire or flood its basically years of payments as you wait to tear down and rebuild.

Its definitely not a glamours business to get into.

[Klazu]

I find it odd how it is impossible to put legislation in place for developers to build multi-unit buildings in a way that would prevent a leak or flood in one unit becoming a problem for nearby units? Sure, it would be slightly more expensive to build but would really prevent these massive insurance cases.

[whatnext]

Originally Posted by rofina

Losses on residential portfolio have potential to be massive though, its definitely a risky business.

Trades are super expensive, buildings are ever more complicated, you have to contend with paying for hotels, in case of fire or flood its basically years of payments as you wait to tear down and rebuild.

Its definitely not a glamours business to get into.

Except why aren't we hearing about this in a Canada-wide context then? Or North America-wide?

[rofina]

Originally Posted by Klazu

I find it odd how it is impossible to put legislation in place for developers to build multi-unit buildings in a way that would prevent a leak or flood in one unit becoming a problem for nearby units? Sure, it would be slightly more expensive to build but would really prevent these massive insurance cases.

More expensive to build, but also limiting in what design is possible.

That being said - we have definitely adopted too much of an engineer mind set here, just because we can engineer our way out of problems it doesn't automatically mean we should or that its a good idea.

As much as I love the look of some of these glass towers, they're a horrible idea for dozens of different reasons.

That being said, its also unfortunate that the general quality of product is gone downhill so much, and that's a blanket statement. The quality of labor assembling the components is not as competent as it used to be, and the actual quality of building components has also gone down.

[rofina]

Originally Posted by whatnext

Except why aren't we hearing about this in a Canada-wide context then? Or North America-wide?

Probably has a lot to do with the fact that we are constantly up there with Manhattan for highest cost to build, and we are still a quite an immature condo market, all considered.

Also, do we know its not a Canada wide problem? Is Toronto affected?

[chowhou]

Originally Posted by rofina

More expensive to build, but also limiting in what design is possible.

That being said - we have definitely adopted too much of an engineer mind set here, just because we can engineer our way out of problems it doesn't automatically mean we should or that its a good idea.

As much as I love the look of some of these glass towers, they're a horrible idea for dozens of different reasons.

That being said, its also unfortunate that the general quality of product is gone downhill so much, and that's a blanket statement. The quality of labor assembling the components is not as competent as it used to be, and the actual quality of building components has also gone down.

If we can look at condos built where the drawers are crooked and the light switches are wired incorrectly and not expect any better, how can we assume that even if we had the most perfectly engineered solutions they would get built correctly?

[Changing City]

Originally Posted by rofina

Probably has a lot to do with the fact that we are constantly up there with Manhattan for highest cost to build, and we are still a quite an immature condo market, all considered.

Also, do we know its not a Canada wide problem? Is Toronto affected?

It's no different in Alberta. And there are similar issues starting to show up in Ontario

[a very long weekend]

So, I work in an insurance lateral (I'm a construction defect litigation attorney, but not in Vancouver), and I can tell you several things about what I think is going on here. It's my opinion, but it's also pretty well informed.

1) When something is wrong with a building, and the developer won't fix it, if possible, the association sues the developer to get it fixed;
2) The sort of insurance you're looking at here is generally insuring construction defects that fall outside of the statute of limitations, or aren't covered by warranty;
3) Strata associations are almost always underfunded from the perspective of insurance types, that is, they should but don't have reserve funds or insurance sufficient to their needs; and
4) Defect claims have risen because of plaintiff side firms that are actively hunting for business.

NONE of these things explains a 40-200% increase in premiums in a given building year over year. That's something that MUST be determined by a risk matrix premium - ie. they've decided that these things have more risk, and/or they've decide to price risk higher.

And there's no chance that it's an increase in risk!

These companies need the money to support other arms of the company, ie. they need more revenue, and determined that this is a captive market, particularly since the competitors are doing it as well.

We've seen it with our firm where they're told us to continue cases (ie. move them forward) because they can't pay the bills for legal work we'd do, but anticipate being able to do so in future. They just need the money! And now they're squeezing customers.

So, like I said, it's a nice space for a narrowly focused insurer to cut their grass.

[s211]

Originally Posted by a very long weekend

1) When something is wrong with a building, and the developer won't fix it, if possible, the association sues the developer to get it fixed;

The more prevalent issue is water escapes which are typically the result of occupant stupidity. Hanging clothes on sprinkler heads to dry (how ironic), filling the tub and then getting stoned and forgetting about the tub, you name it. Having been on a condo board, I've seen them all, and they're legion. The biggest racket has to be the restoration industry. The cost for emergency clean-up, drying fan rentals is insanely expensive.

[rofina]

Originally Posted by s211

The more prevalent issue is water escapes which are typically the result of occupant stupidity. Hanging clothes on sprinkler heads to dry (how ironic), filling the tub and then getting stoned and forgetting about the tub, you name it. Having been on a condo board, I've seen them all, and they're legion. The biggest racket has to be the restoration industry. The cost for emergency clean-up, drying fan rentals is insanely expensive.

Restoration companies are one of the best rackets around. The rates are absurd.

[a very long weekend]

Originally Posted by s211

The more prevalent issue is water escapes which are typically the result of occupant stupidity. Hanging clothes on sprinkler heads to dry (how ironic), filling the tub and then getting stoned and forgetting about the tub, you name it. Having been on a condo board, I've seen them all, and they're legion. The biggest racket has to be the restoration industry. The cost for emergency clean-up, drying fan rentals is insanely expensive.

In this circumstance, it's homeowner vs. HOA, and the sort of insurance that's skyrocketing generally isn't implicated.

[casper]

Originally Posted by a very long weekend

Capping increases would lead to a wholesale exit from the market.

Building out a homeowner's insurance wing of ICBC could be an idea - but only if it were narrowly focused on the main homeowner issues. But if that works, then it stands to reason that there's a better, cheaper private solution out there: one of the major issues insurers have is that these companies are suffering crazy losses in all these other departments, and are making up the shortfall by raising premiums across industries.

What's stopping (possibly new) narrowly focused insurance companies from doing only housing and undercutting the competition?

There are things that could be done on the legal side to incentivize entry into this market, but none would be all that popular.

We just have to look two provinces over to Saskatchewan. SGI is Saskatchewan's equivalent to ICBC. They also do building insurance. I ended up usually getting my condo insurance from SGI since they were usually the cheapest game in town.

When I lived in Saskatoon, I was on a condo board for a 40 unit townhouse property. Purchased when it was new and was the second homeowner to move in. Within three years of being registered there was requirement to have had the engineering study done and to be following a plan to have an adequate reserve fund. During the first few years it easy to build up the reserve fund as you have very little not covered by warranty.

I don't understand how BC had not done the basics on this.

[rofina]

Originally Posted by casper

We just have to look two provinces over to Saskatchewan. SGI is Saskatchewan's equivalent to ICBC. They also do building insurance. I ended up usually getting my condo insurance from SGI since they were usually the cheapest game in town.

When I lived in Saskatoon, I was on a condo board for a 40 unit townhouse property. Purchased when it was new and was the second homeowner to move in. Within three years of being registered there was requirement to have had the engineering study done and to be following a plan to have an adequate reserve fund. During the first few years it easy to build up the reserve fund as you have very little not covered by warranty.

I don't understand how BC had not done the basics on this.

We definitely should.

At the same time we should also acknowledge the dramatic impact this would have on the condo market.

I'm familiar with a half dozen depreciation reports, admittedly not the largest sample size given the amount of buildings.

That being said, all are due for $10,000+ special assessments in the next 7 years under current funding scenarios. Strata under funding is a chronic issue here, often dramatically.

The obvious downside which prevents people from enacting positive change is the simple fact that strata fees, on average, should be close to double on average, which is something people are very unlikely to vote for.

This needs to be a top down change written into law so that buyers don't favor the buildings with low fees, while disregarding the future debacle that's being put off.

[Vin]

So now the entire North America will support urban sprawl? The Insurance firms should be taken to task by the government.

[rofina]

Originally Posted by Vin

So now the entire North America will support urban sprawl? The Insurance firms should be taken to task by the government.

Lets do a capital raise and start a new made in BC insurer to take on the incumbents.

Couple hundred million would get us going. We would only have to be like one of the most successful VC pitches to ever come out of Vancouver to make this a reality.