Insurance premiums: the situation will continue to deteriorate

Over the past five years, insurance premiums have increased at a very worrying rate. Although the situation is global, Quebec appears to be at the bottom of the class, given the unhealthy structure of the industry and regulations that are driving up costs far beyond what they should be.

Over the past five years in Quebec, annual increases by type of building have been as follows:

• Condo (building and common areas): 15 to 35% per year
• Plex and multi-plex: 11 to 20% per year
• Single family: 7 to 20% per year

And again, these are average increases. Depending on their situation, owners have received even higher increases, to the point where it becomes explicit that the insurer no longer wishes to have them as a client and invites them to go to a competitor.

Abandoned by insurers, the condominium market is in a crisis. The faltering management of these buildings and the lack of stability in terms of governance will have finally driven the insurers away and given free reign to the few remaining players who now share this sector.

As for the plex sector, it is plagued by a glaring lack of maintenance, resulting from rent control regulations that discourage investment and preventive renovations. In addition, labour costs for a claim are higher than for rental units since they are subject to Law R-20 and its application by the Commission de la construction du Québec. This directly affects insurance premiums in Quebec since restoration costs are higher.

During an interview conducted a few days ago by Benoit Ste-Marie, CORPIQ’s Director General with two insurance specialists, we learned the seriousness of a situation that will continue still for a few more years.

In fact, as Mr. Ste-Marie summarizes, "despite the strong increases of the last few years, the losses incurred by insurers have still not been reduced. This delay puts more and more pressure on prices because we are in a catch-up situation".  The problem is that there is a restructuring of the industry on a global level, which is leading to a scarcity of supply. The risk levels of the insurance companies are being reached and prices are only going up. We also learn that structurally Quebec is in a bad way since the concentration in the insurance field means that the level of competition is frankly being undermined. On all sides, owners are therefore victims of a situation that is both regulatory and structural. Owners must take an interest in insurance and act to better control premium increases.

CORPIQ's in French interview with two insurance specialists is available at corpiq.com in the News section.

More of the rent is used to pay for insurance

According to figures obtained by CORPIQ, ten years ago, insurance premiums consumed, on average, between 2% and 4% of the building's rents. Today, this ratio is between 3% and 5%, depending on the type of heating in the building. Although landlords have the right to pass on insurance premium increases in full to tenants, it is noticeable that a larger portion of the rent is now being used to pay insurance bills. On the other hand, less money is available for maintenance and repairs. In fact, this expense item is showing a declining ratio. It is a vicious circle.

A market with premium differences of 40% between two insurance companies?

CORPIQ's insurance programs remain a wise solution to help you succeed.  Especially in the plex market, direct insurers, who used to be aggressive on price, are becoming more and more selective. In this sense, they can issue particularly high premiums. Doing business with CORPIQ's broker-partners can, at times, make a major difference by the simple fact that, being specialized in the rental sector, they are able to offer a better match in terms of insurance coverage.  Let's take the specific case of a triplex in the Rosemont-La-Petite-Patrie district of Montreal where the price difference is 40%:

• Direct insurer: $1,979
• CORPIQ program: $1,173

Without mentioning averages, many comparisons between premiums show savings of around 30% to 50% for the same building and the same coverage, especially in the Greater Montreal area, which is particularly affected by the current turmoil. Care must always be taken to compare insurable values (replacement cost), as well as deductibles, which are often much too low. A minor increase in the deductible amount in the event of a claim can have a substantial impact on the premium.

Two key elements that make all the difference

Roofing replacement costs being what they are, many homeowners delay roof repairs as long as they can. Less apparent, however, the annual insurance cost is 20 to 30% higher each year for roofs that are 15 years old. According to the example of the Rosemont building above, it is therefore an additional $400-500 per year that must be added, which, after 4 years, is often close to $2,000.    

The level of risk an owner is willing to assume is also a determining factor.  Is it really worth the cost of paying for insurance to get a deductible under $1,000? If, by chance, a loss was to occur (and you know the condition of your building better than the insurer to assess this probability), would you make a claim for as little as $1,000?  This is, depending on your type of building and your financial capacity, an important key to considerably reduce your insurance costs. By investing the money saved through preventive measures on your building, there is probably a real saving, not to mention the appreciation in value of your property.