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Condo Insurance Premiums Are Spiking In Canada, Threatening Resale Prices

Climate change and rising construction costs are causing some insurers to leave the market.
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TORONTO ― The cost of insuring a condo building is rising rapidly in Canada, and that could be bad news for owners’ resale values.

Faced with increased climate-related disasters and rising reconstruction costs, some insurers are backing out of the condo market, and that in turn is causing premiums for condo building insurance to spike.

Commercial insurance policies for condo buildings as a whole shouldn’t be confused with insurance policies for condo owners ― although those premiums are also on the rise.

Watch: Canadians and Americans are now totally different, financially. Story continues below.

British Columbia condo buildings are facing insurance premium hikes of between 50 per cent and 300 per cent, Condominium Homeowners Association executive director Tony Gioventu recently said.

On top of that, “deductibles are going from the conventional $10,000 or $25,000 to $100,000, $250,000 or $500,000,” Gioventu said in a Global News article.

One core reason is an increase in unexpected weather-related events that have caused insurance payouts to spike, explained Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada.

“There are more and more severe weather events that are resulting in more insured losses, things from wildfires to flooding,” he told HuffPost Canada.

He noted that B.C. has experienced large wildfires, while the 2016 fire in Fort McMurray, Alta., was a “record-breaking event.” The Ottawa region has seen two floods and two tornadoes in the past two years.

Insurance payouts for severe weather jumped to between $1 billion and $2 billion in recent years, from around the $400-million range just five years ago, Karageorgos added.

The result is that some insurers are discontinuing condo coverage, meaning the remaining insurers can charge higher premiums ― which they are using to cover not only weather events but also increased repair costs.

A shortage of skilled labourers across the country is pushing up the cost of reconstruction projects. Materials costs are also rising, further raising the payouts insurers are on the hook for.

In one extreme example, a condo complex in Ottawa recently found its insurance premiums rising by 730 per cent because of wind and fire damage.

“Some people are suicidal,” condo board president Marie Weerasooriya-Epps told CBC News. “Some people are headed for nervous breakdowns.”

‘A downward spiral’

While not every case is as extreme, rising insurance costs can take a bite out of property values. In general, the rule is that condo values are the inverse of monthly fees ― the higher the fee, the lower the resale value.

And the worst-case scenario could indeed be bad. In a recent book, author Randy Lippert warned that condo corporations in Toronto and New York City are at risk of going bankrupt over rapidly rising costs. Lippert noted that condo fees have been rising faster than homebuyers’ incomes for years.

Because condo developers often promise unrealistically low condo fees when they launch projects, buyers often find themselves facing higher costs than they’d expected, and will sometimes allow buildings to fall into disrepair. That in turn increases costs in the long run, becoming a downward spiral for those buildings.

“I think there will be a number of condos where those fees will become unsustainable and people will want to get out, and there’s a point at which it (all) becomes unsustainable,” Lippert told HuffPost Canada earlier this year.

However, not all condo buildings are in poor financial shape, and buyers can still find reliable buildings to buy condos in, Lippert added.

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