Case study: Earthquake Insurance – is your Strata protected?
In BC over 25% of the population lives in a strata and only 55% of owners in Metro Vancouver carry earthquake insurance. What does this mean for your community?
Guest post from BFL Canada
If you are from British Columbia, or anywhere along the Ring of Fire, you’ve likely heard talk of the impending “big one” or been witness to a few small tremors. According to a recent geological survey of Canada, BC is due for a large earthquake with an estimated 30 per cent probability of it happening in the next 50 years.
What does that mean for our communities?
In BC, it is estimated there are approximately 40,000 Strata Corporations containing more than 600,000 strata lots; that’s over 25% of the population living in a strata and according to the Insurance Bureau of Canada (IBC), only 55% of owners in Metro Vancouver carry earthquake insurance.
Your strata policy
Earthquake insurance is available for Strata Corporations in BC to purchase. The vast majority of Corporations obtain that additional coverage to protect themselves and their ownership; however, a significant consideration under that special coverage is the deductible.
In the Canadian marketplace, earthquake deductibles are typically shown as a percentage…but a percentage of what? The deductible amount is a percentage of the total insurance value stated on the certificate of insurance or policy declarations and ranges between 10% and 20% in the lower mainland.
Case study example
Strata Plan EPS1234, Happy Street, Vancouver,100 units
|Total Insurance Value||$60,000,000|
|Total Deductible for Strata||$6,000,000|
As shown in the example above, the deductible amount can be considered for a Strata Corporation, plus there’s a more than likely chance that the earthquake insurance policy for your strata will not be triggered as the damage will be below the deductible and/or there won’t be enough money available to pay that deductible or damage in the event of a loss.
As per the Strata Property Act, an insurance deductible is a common expense. If there aren’t sufficient funds available for the strata to pay the deductible, as an owner you would be assessed your portion of the deductible based on your individual unit entitlement. The same assessment could also be made for damage that falls under the strata’s deductible.
In this particular case study and assuming there is nothing in the contingency reserve fund to help with the repair costs, the average assessment for an owner would be $60,000!
But don’t forget your actual assessment would be calculated using your specific unit entitlement, meaning the assessment could be even higher.
How can you protect yourself from this financial impact?
Fortunately, there are a few options available to reduce the financial impact of an earthquake assessment:
Earthquake Deductible Buy Down
Today, a Strata Corporation can buy down the deductible as low as 5%. This cuts the financial risk to at least half for owners. We strongly recommend strata's consider this relatively new product when going through their next insurance renewal.
While the new earthquake deductible buy-down product provides some relief, there is still exposure for owners. Many people believe they will get relief from the Federal and/or Provincial governments.
While in some cases, limited relief may be deployed, the only certain way to protect yourself is to purchase adequate earthquake insurance with your personal insurance policy.
Sufficient coverage is essential; you should discuss with your personal insurance broker on how best to protect yourself. If your personal insurance policy is not set up correctly, you may not have enough, if any, coverage to protect yourself from the financial loss of an earthquake.
When it comes to your building or strata community, the best insurance advice you can get is from a specialized strata insurance broker, who may also be able to refer you to a capable personal lines broker who understands the risks of a Strata Corporation.