Over the past year condo corporations (strata condos) have been facing a very challenging climate in respect to their insurance needs.
For many years, condo corporation insurance rates have been relatively stable. However, excessive water damage losses, along with severe weather events have created a situation where this class of business is creating large losses for insurers who have typically provided coverage for condo corporations.
In response, the insurance industry nearly universally is applying significant rate increases and often coverage restrictions, usually in the form of very high deductibles.
For condo strata boards, this can mean having to deal with drastic budget changes in most cases and in some extreme cases can even present board members with difficulty in being able to insure their condo strata at all.
For unit owner’s this typically presents two challenges, the first being higher condo fees to offset the higher cost of condo building insurance and the second is navigating the coverage restrictions imposed upon the strata.
Let’s take a look at how a condo strata deductible can impact a unit owner.
Damage to a condo unit can arise in many ways, some from within the unit itself and some from other units in the building. Regardless of the source of the damage, the unit sustaining the damage almost always has to pursue a claim under their unit owner’s policy.
In some instances, the liability coverage from the unit where the cause of the damage arose may cover part of the cost of the damage. However, liability insurance only pays the depreciated value of the damaged property, whereas a claim under the policy insuring the damaged unit can pay replacement cost. In addition, in order for the liability coverage of a neighboring unit to respond there must be clear negligence (ie: forgetting to turn off a tub). In most cases damage arises from pipe bursts, toilet leaks, and other things that don’t have a direct “fault” on anyone’s part.
For our discussion, let’s take the example of a pipe burst in the ceiling above our insured condo unit. The water causes significant damage to the ceiling, flooring, walls, a home theatre and a couch in the living room of the condo. The damage to personal belongings is $4,000 and the damage to the structure of the condo is $27,000. For our example, let’s choose a condo strata deductible of $25,000.
The $4,000 in contents are claimed easily under the unit owner’s policy that insures personal belongings. The condo strata would present a claim to the corps insurance company for $27,000 and that insurer would pay $2,000 of the loss ($27,000 – $25,000 condo strata deductible = $2,000). The condo corp would then complete a loss assessment for property damage to the unit owner, leaving the unit owner with the $25,000 bill. Nearly all condo unit owner policies have property assessment coverage and many have a specific limit for “deductible assessments” such as this. In this case, our unit owner could present the $25,000 deductible assessment from the condo corp, along with the $4,000 contents damage as a single claim to their condo unit insurance company. The condo unit insurance company would pay the loss of $29,000, less the unit policy deductible, which is typically $500 – $1,000.00.
But what if the damage had been far worse? What if the condo strata deductible had been much higher?
In fact, $50,000 deductibles are becoming the norm for strata condos and many even have water damage deductibles as high as $250,000. For this reason, it is important that unit owners understand what their condo strata deductible amount is and also if their strata have a separate deductible for water damage.
Once this information is known, condo unit owners should verify that their condo unit policy has deductible assessment coverage provided under their property assessment coverage and that the limit of coverage is sufficient to cover the condo strata deductible.
Commonly, condo unit policies come with deductible assessment coverage of $25,000 and $50,000, which has historically been plenty of coverage. These limits are now low in many cases because of recent changes to strata condo insurance.
A condo unit policy can typically increase this coverage between $75,000 and $100,000. This will meet the need of many, but not all condo unit owners. As a result of the need for more coverage, deductible gap policies have started to be come available to bridge the gap between the condo unit policy and the condo strata deductible. Gap policies are typically able to fill in gaps of no more than $150,000 (typically from $100,000 coverage on the unit policy to a $250,000 strata deductible).
Now, with condo unit policies and in some cases condo unit policies, plus gap policies being asked to bare up to $250,000 of the cost of damages, the premium for such policies are also rising significantly. Where a condo unit policy used to just insure the contents of the condo, they are now often being asked to insure hundreds of thousands of dollars of damage to the structure of the condo itself, making them more similar to homeowner’s policies than ever before. The cost of condo insurance is certainly something to keep in mind for prospective condo insurance buyers.
At Swift Digital Insurance we offer a wide array of condo unit policies, with the ability to provide substantial underlying deductible assessment coverage. Where our unit policies aren’t able to fully meet the strata deductible we provide a gap policy that can reach nearly any strata deductible.
Talk to a Swift Digital broker today!