New Realty Risks: Getting Apartment Buildings & Condos Insured

If you’re a broker looking to insure an apartment building or condominium complex in Canada, you should be aware of the challenges — and how to navigate them.

In today’s hard market, most insurance companies are reluctant to take on new multi-residential properties, unless they meet very specific criteria. The industry’s current state makes these types of properties unappealing to insurers. As a result, you will want to be careful about wasting your time quoting properties that are not best-in-class.

In this article, we’ll discuss what factors insurance brokers should consider when trying to secure insurance for a new multi-residential property. This advice should make it easier for you to disqualify poor leads and use your time more efficiently when responding to these types of clients.

What To Look For In New Realty

If you receive a lead for a new multi-residential property in Canada, the top factor to consider is the age of the property.

You want to look for properties that have been built recently, generally in the past ten years. However, you also want to focus your efforts on properties that have a well-established condominium board. We recommend that you steer clear of any brand-new properties.

If the building in question has not been built in the past ten years, then it should have received significant upgrades within a recent time frame. Although there are exceptions to this generalization, experience has shown that this is the best criteria to follow when quoting new, multi-residential properties. We’ll explain why these factors are important to insurers in more detail below.

Building Standards

Property age is an important factor due to the changes in building standards that have occurred over the past decade or so. Building standards are regularly adjusted and, in part, this is driven by how the insurance industry assesses risk exposure.

For example, older townhouse-style condos in Ontario tend not to have fire blocks built into them. Previous iterations of the building code didn’t require this element. These units were built as frame homes and, as a result, there is a real possibility that a single fire could seriously damage an entire block. Today’s insurers are simply not willing to take on this type of risk.

Most insurance companies will only insure concrete, fire-resistant buildings. While some older buildings may be able to meet these requirements, these tend to be the exceptions.

Other building practices are also important to consider:

• You should avoid multi-residential properties with cast iron pipes, instead of copper or PVC.
• You should also steer clear of buildings that have knob and tube wiring or aluminium wiring, as these are known fire risks.

Modern properties with up-to-date building practices are your safest option, so it’s better to concentrate on apartment buildings or condo complexes that have been built in the last ten years.

Condo Management

When quoting a new multi-residential property, it’s best to focus on buildings with a well-established condominium board. Condo boards assist with the management of the finances of a property, keeping the building well maintained and minimizing the number of claims.

After a new condo is built, it is common for builders to lowball condo fees to attract tenants. Builders will assume a best case scenario when estimating the cost of future repairs and upgrades. An experienced condo board will typically raise condo fees, in order to build up the proper reserves to care for the building in any situation.

When quoting, we recommend that you look for an established property with a low number of claims. This will typically indicate that the condo board has raised fees appropriately and is able to manage the maintenance of the property by dipping into reserves, rather than submitting claims for every minor issue. They should also be better prepared for long-term upgrades to the building, which will need to be planned for years in advance.

Your insurers do not want to handle major claims from a multi-residential property. That’s why it’s important to focus on properties with condo boards that know how to manage their finances and have a low number of claims on record.

What’s Next?

The current challenge of insuring new multi-residential properties has led to a well-documented crisis in condo coverage in B.C. Many older properties in the province are going uninsured, due to the challenges of securing coverage. While most companies will continue to insure existing buildings, many are refusing to take on new properties.

As a broker, it is important to understand the situation facing multi-residential properties when looking for new business. If you want to save yourself time and energy, it is important to stick to new, best-in-class properties with well-established condo boards.

Have more questions about how to get coverage for new properties? Reach out to our team at Jeffery & Spence.