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In early March, we invited our condo boards in Calgary to come out and hear the latest on insurance renewals. The insurance industry worldwide has been reacting to a perfect storm of too much risk and too many claims; it’s made them unprofitable in their property insurance business.
Thanks to our friends at BFL Canada for their research and partnership.
For every $1 collected in premiums, insurance companies paid $1.67 in claims.
Based on our partner BFL Canada’s data from 2018 (3-year cumulative data), for every $1 insurance companies collected on premiums for condominium buildings, they paid on average $1.67 for claims.
From this, you can calculate a 3-year “loss ratio.” In the above example, the 3-year average loss ratio for claims was 167%.
Type of construction (and where) impacts premiums
The type of construction of condominiums had different average loss ratios.
- Concrete buildings were 130%.
- Wood frame townhouses were also 130%.
- Wood frame apartment buildings had an incredible loss ratio of 240%.
The location of buildings is also an important factor in premium calculations. A wood-frame apartment building in a flood zone, for example, could experience a huge increase in premiums. In some cases, buildings are getting lucky they can even get insurance at all.
How did the condominium insurance industry get so out-of-control?
The main factors for this trend of insurance premium increases are a combination of more disasters, more risks, ageing buildings AND more claims that are more expensive. Consider:
- 1 in 3 condos will have a claim
- Claims are always greater than $50K
- 54% of losses claimed are over $100K
There have been stories in the condo insurance industry of buildings that have a loss ratio of 1000%. In other words, for every $1 the insurance company collected for a premium, they paid out $10 in claims. These types of buildings will have a tough time getting any insurance at all, especially if they are wood frame construction in a risky area, such as a flood zone.
Residential realty is being abandoned by some insurers
Sadly, because of the high risk in insuring residential realty, several insurers are deciding not to bother.
This is creating a “Less Supply and Higher Demand” situation with insurers for condo buildings.
- Fewer insurers
- Companies that remain are insuring fewer buildings
- More buildings are being built
- Larger buildings are being built
- Replacement costs are increasing
What is the insurance premium impact for condo owners?
Because of Less Supply / High Demand scenario for insurers, condo owners can expect:
- Higher rates and deductibles
- Less insurable properties
- Bottlenecks in the insurance market
How does the insurance brokerage process work?
A broker doesn’t work for a single insurance company; their job is to get the best possible deal for you from a wide range of insurance companies that carry insurance for your type of property.
BFL Canada put together this great video about how the brokerage process works.