A Step in the Right Direction for Strata Insurance
Wednesday, Sep 16, 2020
New Provincial Policy is a Step in the Right Direction for Strata Insurnace
Kevan Lewis - HomeLife Benchmark Realty
On September 14 the provincial government announced changes to regulations concerning strata insurance. While the changes will not prevent insurance rates from going up, it does create transparency for strata owners as the amount of commission receieved by the insurance broker will now have to be disclosed, and the insurance corporation will have to give a 30 day "heads up" to the strata before they can raise their rates.
On the surface this will do little to prevent insurance rates from going even higher, but we have to keep in mind that governments have a tendency to make changes extremely slowly. I am surprised that we have actually heard of any policy change coming in less than a year since the issue was initially brought to light.
Effective November 1, 2020, insurers or insurance agents will be required to provide 30 days advance notice directly to strata corporations of their intention to not renew an insurance policy or of any material changes to the policy (ie. higher premiums or deductibles).
Insurance agents will also be required to disclose their commission amounts directly to strata corporations in order to keep things as transparent as possible.
What might be the best new policy in my opinion, is the prohibition of strata managers receiving referrals from insurance companies. Strata managers fall under the same duty to disclose any compensation, or expected remuneration, to their clients. Strata managers work under fiduciary duty which means they have to work in the best interest of their clients, the strata corporations. Unfortunately the new policy does not prevent strata managers from taking referal fees from other industries such as landscapers or cleaning contracts, which will hopefully come in the future.
Currently the law is that managers have to disclose any referral fees they are recieving from trades, however, many strata management companies use blanket statements in their agreements that says they may take referral fees. This should not waive the need to disclose every instance of a manager recieving a fee, but the industry norm seems to be that this one clause in the contract is "good enough". More transparency should be required and more should be done to verify that any disclosures that needed to be made have been made. As a whole referrals should not be banned, but stratas should be aware of the total amount that it will cost the strata in addition to the fee being collected by the manager, as the extra cost of the referral will likely fall on the strata, which can be viewed as a breach of fiduciary duty as the strata manager would be acting in his or her own interest. Not all strata managers do this, and of those that do, many are looking out for their strata corporations, but more transparency will not prevent them from collecting the fee, it will just make everyone involved fully informed.
The insurance industry has seen a greater rate of profit loss from mostly minor claims (particularly those resulting from water damage) due to poor building maintenance practices and initial construction quality issues.
The data suggests that insurance has also been used to fill in the gaps left by other forms of protection such as home warranties for new buildings and maintenance programs for older buildings. Further, the exposure insurers have in regard to earthquake risk in B.C. compared to other places has prompted many of them to reduce the amount of insurance that they offer.
The BCFSA (BC Financial Services Authority) will be releasing their final report and recommendations on the rising costs in fall 2020
