Preparing for a Strata Insurance Renewal

Most strata councils meet their insurance renewal as an invoice. It arrives a few weeks before the expiry date, the premium has moved, the deductible may have moved with it, and there is very little anyone can do except approve the payment and get on with the year.

Councils that treat the renewal as a project rather than a bill tend to get better outcomes, and the reason is simple. An underwriter prices a building on the information available at the time. A strata corporation that supplies a complete, current and well-organised picture of its property and how it is maintained is a different risk, on paper, from one that supplies last year's numbers and a loss run.

None of that guarantees a lower premium. It does change what you are able to influence.

Start Earlier Than Feels Necessary

The practical starting point is roughly four months before the renewal date, which sounds excessive until you work backwards through what has to happen.

An updated replacement cost appraisal takes time to commission and complete. Getting accurate information about recent building work out of records and contractors takes longer than expected. If the council intends to put the placement out to more than one broker, that process needs weeks. And if the current insurer is not going to renew, you want to know that with time in hand rather than with ten days left. Insurers are required to give the strata corporation advance notice of non-renewal or a material change to coverage, and a council that is already prepared can use that notice period productively.

Four months also leaves room for the one thing that cannot be rushed, which is fixing something the underwriter is going to ask about.

What the Underwriter Is Actually Pricing

Strata insurance pricing is less mysterious than it appears. A small number of factors do most of the work.

Claims history dominates. A strata corporation with repeated water escape claims will pay more and carry a higher deductible than an otherwise identical building with a clean record, and this is the single largest driver of what happens at renewal. Water damage is the category that matters most, because it is by far the most frequent and most expensive loss in multi-unit residential buildings.

After that comes the building itself: age, construction type, height, the condition and age of the plumbing, the roof, the electrical system and the building envelope. Then the replacement cost figure, which determines the sum insured. Then risk mitigation, meaning what the building has in place to prevent or limit a loss. Occupancy and the proportion of rented units feature as well, and for earthquake coverage, location and construction carry particular weight.

Of those, claims history and mitigation are the two the council can do something about, and mitigation is the one available in the current year.

Assemble the Information Package

The documentation a broker needs is reasonably standard, and having it ready and accurate is the part within the council's control:

• A current full replacement cost appraisal, ideally no more than two or three years old, since insurers commonly expect a recent one and an outdated figure risks underinsurance
• A complete loss history, including claims that were reported and withdrawn
• Details of major building work completed, with dates, covering plumbing repipes, roof replacement, electrical upgrades, envelope and window work and fire system upgrades
• The most recent depreciation report and the strata corporation's maintenance plan
• Records showing that scheduled maintenance has actually been carried out, rather than only planned
• Current unit count, occupancy and the proportion of units rented
• Details of fire protection, security, monitoring and any water mitigation measures in place
• Current bylaws, particularly any addressing maintenance obligations and liability for deductibles

The one most often missing is evidence of completed maintenance. A depreciation report describes intentions. Invoices and service records showing that the work was done, and that building systems are inspected on schedule, are what substantiate the risk management claim an underwriter is being asked to accept.

The Appraisal Is Not a Formality

A strata corporation's property insurance has to be written on a full replacement value basis, and the appraisal is what establishes that number.

Construction costs have moved substantially over recent years, which means an appraisal that was accurate when it was commissioned may now understate what rebuilding would cost. The consequence of carrying too low a sum insured only becomes apparent after a major loss, and it is the worst possible time to discover it.

Keeping the appraisal current is therefore both a compliance matter and a financial one. It is also connected to budgeting, since the premium and the contingency reserve both depend on realistic numbers. Our accounting services work with councils on exactly that relationship.

Deductibles and How They Get Paid

Deductibles on strata policies are large. Figures in the range of one hundred thousand dollars to several hundred thousand are common depending on the building and its claims record, and earthquake deductibles are typically calculated as a percentage of replacement value rather than as a fixed sum, which makes them very large indeed.

Two things follow from that, and both deserve a decision before renewal rather than after a claim.

The first is funding. A strata corporation's deductible is a common expense, and it can be paid from the contingency reserve fund or through a special levy without the three-quarter vote that most reserve expenditures require. That flexibility is useful, and it only helps if the reserve has enough in it. A council carrying a very large deductible against a thin contingency fund has a funding problem waiting to happen.

The second is recovery. Where an owner is responsible for the loss, the strata corporation may be able to recover the deductible from that owner. Whether that works in practice depends heavily on the bylaws and on the circumstances, which is why bylaws addressing owner responsibility are worth reviewing at the same time as the policy.

Reducing Water Claims Is the Highest Leverage Work

Because water escape drives both frequency and cost, the mitigation measures that address it are the ones that change a renewal conversation.

The measures that insurers tend to recognise are unglamorous: a program for replacing flexible supply hoses to appliances and fixtures on a defined cycle, inspection and exercising of shut-off valves, maintenance of hot water tanks with a replacement age rather than a failure trigger, in-suite leak detection where the building supports it, and clear owner communication about what they are responsible for. Known deficiencies in plumbing, roofing or the envelope matter too, and a documented plan to address them reads very differently from silence.

Putting a program like that in place is ordinary management work, and it is largely a matter of records and follow-through. It is part of what strata management services are for, and it is also where the difference between a plan and a practice becomes visible to an underwriter.

Keep the Owners Informed

Insurance is one of the areas where the strata corporation has specific communication obligations, and renewal is when they come due.

Material changes to coverage, including reduced coverage or an increased deductible, have to be communicated to owners and tenants as soon as feasible. The annual insurance review is reported at the annual general meeting, with a summary of the policy normally included in the notice package. And the insurance summary forms part of the Information Certificate that gets provided when requested, which means it reaches buyers and lenders as well as owners.

Handling that properly matters beyond compliance. Owners who learn about a large deductible increase from a conveyancing document rather than from the council tend to arrive at the next meeting with questions that could have been answered earlier. Requests for records and certificates run through our forms and records request process, which keeps that side of it orderly.

Where the Manager Fits

Much of this is coordination rather than judgement: commissioning the appraisal, assembling records, chasing contractors for dates, getting documentation to the broker on time and making sure the owner communication happens when it should. It is also the work most likely to slip when a volunteer council is already busy, which is one of the clearer illustrations of what a strata manager actually does.

The decisions stay with the council. The preparation is what determines how good those decisions can be.

Talk to Obsidian Property Management

Obsidian Property Management works with strata corporations across Surrey and Greater Vancouver, supporting councils on records, finances, maintenance planning and the administrative work that a renewal depends on.

If your renewal is approaching and you are not confident the package is ready, get in touch and we will walk through what is in place and what is missing.

This article is general information and does not constitute insurance, legal or financial advice. Requirements under the Strata Property Act and its regulations, municipal rules and insurer practices change over time, and every building is different. Speak with your broker and with a qualified advisor about your own strata corporation before acting.