Changes to Strata Property Act 2023
Changes to Strata Property Act 2023 - Impact on Insurance
In January, the BC government announced changes to the Strata Property Act to assist in ensuring there are adequate funds available in contingency reserve funds for property upgrades. The hope is to reduce issues with maintenance so there are fewer insurance costs in years to come.
Details on the Amendment
“People living in stratas deserve to have peace of mind that their strata corporation has appropriate reserves to do routine maintenance and keep strata insurance costs down,” said Ravi Kahlon, Minister of Housing. “The overwhelming majority of stratas are doing just that, but a small number of strata corporations that are underfunding their contingency funds and putting owners at risk of surprise fee hikes and higher insurance costs. While the vast majority of strata corporations are already meeting these requirements, we’re ensuring that those outliers are taking steps to protect themselves.”
In 2020, BC introduced changes to the Strata Property Act to help stratas better manage strata insurance costs, including enabling these regulatory changes. Strata corporations in BC are required to have a contingency reserve fund (CRF) to pay for infrequent common expenses, such as maintenance work and emergencies. These new rules will increase the minimum amount that developers and strata corporations are required to contribute to a CRF, from 5% to at least 10% of the annual operating expenses every year. These changes will take effect on November 1st, 2023.
The new minimums were set with the advice of strata managers and homeowner representatives. According to strata industry experts, the vast majority of approximately 34,000 strata corporations in the province exceed this minimum amount and will not be affected by this change.
The Province is also enacting changes to the Form B Information Certificate. A summary of the strata corporation’s insurance coverage must be included in the form, effective April 1, 2023. This will make it easier for prospective buyers and strata owners to know whether the property is adequately insured, and the amount of insurance individual owners need to purchase.
What about new Developments?
Developers are required to include a CRF contribution in a new building’s interim budget, which under these changes will need to be equal to at least 10% of the operating expenses. This will prevent developers from advertising unrealistically low strata fees to prospective buyers and avoid unexpected increases in strata fees in the building’s first years.
For the small number of strata corporations that need to contribute more funds to their CRF to meet the new minimums, this will reduce their risk of strata insurance claims and premium increases, and significant special levies on short notice.
How May this Impact Insurance in BC?
For the most part, this change will have impact to strata owners since most Strata Corporations are already meeting the 10% CRF contribution. That being said, for the Stratas that were underfunding their CRF, this may have an impact on monthly strata fees to boost up the minimum contribution to the CRF. In terms of insurance, the goal of the amendment is actually to reduce the likelihood of the need to use insurance. If proper maintenance is adhered to, the hope is that this will reduce claims linked to poor maintenance of properties. If insurance claims go down, insurance premiums normally are able to remain static without sizeable increases like we have been seeing in recent years. So, overall, the amendment by the province is a positive one for insurance.
At Leaders Insurance, we have a team of skilled brokers who help clients daily with finding the best rates for their home insurance needs. As a result, we have developed longstanding relationships with our clients for home insurance. We take the time to understand your needs and can help you as you find what is right for you. We look forward to assisting you with all of your insurance goals and requirements. Contact Us today.
Is the cost of commercial insurance rising?
Is the cost of commercial insurance rising?
Like almost everything right now, costs are rising and so is the cost of commercial insurance. If you own a business, you know all too well how high costs are getting. It is such a difficult thing to balance as you still want to stay competitive but your bottom line is getting tighter. Unfortunately, when we look at the trends for costs of commercial insurance, it does appear that commercial insurance is costing most businesses more in 2023.
What’s Driving this Rise?
Like most businesses, insurance companies have tried hard to keep costs in line with current rates. However, over the last year, the insurance industry has seen a rise in costs and this has costs losses to its expected profits. As a result, the industry is not generating the returns they would like so most insurance companies are seeking rate increases of 5% to 10% or more for some lines. However, the insurance market has a significant amount of surplus or available capital, which drives competition. While companies would like to raise prices, this competition serves as a moderating factor.
So, what can insurance buyers expect in 2023? Assuming similar exposures (payroll, property values and revenues) and a decent loss history, buyers should conservatively budget for a rate increase – the value largely dependent on the type of business one operates. The following is what you can expect for certain lines:
Property insurance
Certain properties are seeing significant increases, however. Anything remotely exposed to wildfire and flooding risk will see massive rate hikes. This affects both personal and commercial lines. Properties with wind-driven exposures are also difficult to insure. Expect flood premiums to go up significantly. Note that the replacement value of most properties has increased significantly due to inflation, so do not be surprised if your insurer insists on higher replacement cost values.
General liability insurance
This line of insurance is experiencing modest increases. However, like all lines, this can vary. Some commercial construction and life science risks may see decreases, while certain habitational and hospitality businesses have seen double digit increases.
Executive risk
This line of insurance includes directors and officers (D&O) liability, employment practices and crime coverages. In the US, the market remains competitive with 5% to 10% average rate increases expected. The exception is public D&O, which is seeing flat renewals and, in some cases, rate decreases of 10% or more.
Cyber insurance
For years, this coverage was underpriced, but now rates are going up and underwriting requirements are strict. Cyber insurance is volatile and the number of new players entering the market make it difficult to provide a general idea of what insurance buyers might expect on renewal. Based on recent experience, cyber insurance costs will likely go up substantially now that is a much sought after line of coverage for most business owners.
Professional liability insurance
This line of insurance is for your typical accountant, lawyer, architect or engineer remains in fairly good shape. There are a number of insurers competing for business and experience has been decent, but not great. Many insurers are seeking increases of 10% or more, but as mentioned above, competition is helping to soften this and most accounts are renewing with minimal rate increases.
Every business has different exposures, business practices and loss histories, all of which will affect your insurance costs. Firms that invest in loss prevention, proactive HR practices and aggressive claims management are generally looked upon more favorably by the underwriting community. The importance of risk management in controlling insurance costs cannot and should not be overlooked. In the end, while some conclusions can be made based on a macro view of the insurance industry, the best way to budget appropriately for 2023 is to have a discussion with your insurance broker.