In the BC insurance world, 2020 began with breaking news about crazy-high strata insurance premiums.
There was a little good news in 2020!
At the beginning of last year, the news finally broke about the outrageous strata insurance premiums for strata developments in BC. It was found that strata insurance and deductibles had been increasing significantly year-to-year. The increases were attributed to the challenge by insurers to make a profit in BC’s strata insurance market as a result of the rising costs of claims. What’s more, insurance providers considered the market as “high risk” due to steadily increasing property values as well as the excessive risk of earthquake.
In answer, the provincial government turned to the BC Financial Services Authority (BCFSA) – the agency that regulates the private insurance sector in British Columbia – to investigate the issue and help identify possible solutions.
By early summer, the BCFSA’s report found that a practice referred to as ‘best terms pricing’ was a significant contributor to the increase in premiums by, on average, 50 per cent in Metro Vancouver. The report that followed shortly thereafter identified that as many as 94 per cent of sample properties had been impacted negatively by best terms pricing.
According to Canadian Underwriter, best terms pricing refers to the final premium paid by owners of strata properties on an insurance subscription policy that is based on the highest of various insurance companies’ bids, even if the majority of insurance quotes are lower. Essentially, it’s a process where brokers gather quotes from various insurers, and when the insurer quotes on a strata property, it identifies the level of risk it’s prepared to accept along with a rate charge.
The quotes are conditional and based on all the insurers accepting the same terms. And, instead of the premium being set by the quote of each individual insurer, or by taking the average of all the quotes collected, under best terms pricing the final premium cost is set by the highest rate quoted by any of the insurers on the policy.
The amendment of Bill 14
Effective November 1, 2020, Bill 14 – 2020: Municipal Affairs and Housing Statutes Amendment Act (No. 2), 2020, amends insurance-related provisions of the Strata Property Act (SPA) and the Financial Institutions Act introducing regulatory changes. It addresses best terms pricing and the rising costs of strata insurance.
The costly practice will officially end this month, January 2021.
As a result of the inquiry and the amendment of Bill 14, insurers and agents are required to provide one month’s (30 days) notice directly to strata corporations of their plans to not renew an insurance policy, or if they’re making any material changes to the policy. This notice assures that strata corporations will be properly notified in advance of any increases in premiums, giving them time to explore other options for insurance coverage.
Insurance providers are now also required to disclose the amount of their commission to strata corporations or risk a substantial penalty – potential fines up to $50,000 for a corporation or $25,000 for an individual agent. Additionally, referral fees paid to strata property managers from strata insurance transactions is entirely prohibited.
For more information on the Bill, read the full government press release.
The bottom line is the amendments to the Bill should now better provide strata corporations with the necessary information to make better decisions regarding their insurance needs.
Read more detailed information about Bill 14.
If you’d like more information about how these changes impact you, please contact us!