On September 13, 2020, the Government of British Columbia (Government) announced regulatory changes (Regulations) to address rising strata insurance costs in British Columbia. These changes follow the passage of the Municipal Affairs and Housing Statutes Amendment Act (No.2), 2020 (Bill 14), which amended certain insurance-related provisions of the Strata Property Act (SPA) and the Financial Institutions Act (FIA).
Bill 14 and the Regulations follow an interim report by the BC Financial Services Authority (BCFSA), which found that strata insurance premiums and deductibles have risen significantly on a year-over-year basis.
The increases have partly resulted from insurers struggling to sustain profitability in the B.C. strata insurance market due to rising claim costs. In addition, insurers have identified the B.C. strata insurance market as “high risk” due to rising property values and excessive exposure to earthquake risk. The BCFSA report also noted that there is a lack of capacity in the strata insurance market to support future demand.
According to the BCFSA, the strata insurance market is “unhealthy” and “fails to meet the goals of sustainability, affordability and availability.” The BCFSA is conducting further investigations and expects to release its final report later in the fall of 2020, which may include further regulatory and industry recommendations.
Effective immediately, insurers, insurance agents and salespersons are prohibited from paying commission fees for business referrals in relation to strata corporation insurance, unless the person making the referral is a licensed insurance agent or salesperson. As a result, strata property managers will not be able to collect fees for referring strata corporations to insurance providers. If such fees are paid, the Insurance Council of British Columbia can suspend, cancel or restrict licenses, and impose fines.
In addition to the prohibition on referral fees, the following regulatory changes enacted under the FIA will come into effect on November 1, 2020:
These changes to the FIA will allow strata corporations advance warning of increases to insurance rates and provide time for them to seek alternate insurance options. Additionally, strata corporations will now be able to assess the commissions of insurance agents when comparing policies, which may result in more competitive insurance prices.
The following amendments to the SPA are currently effective:
The following amendments to the SPA will become operational by regulation at a later date:
While the ultimate success of Bill 14 in addressing rising strata insurance costs remains to be seen, the Government has begun to implement regulatory changes that could have far-reaching consequences for the strata insurance market. Initial regulations eliminate referral fees and provide strata corporations with advance warning regarding increases to insurance costs, allowing them more time to compare policy quotes without risking a lapse in insurance coverage. Required disclosure over commissions increases transparency for strata corporations and may reduce insurance prices as insurers seek to remain competitive.
Remaining regulatory changes are expected to be implemented following further consultation with strata community stakeholders and the final report of the BCFSA in fall 2020. Although regulatory changes are presently focused on strata properties, it is important to note that rapidly increasing insurance premiums are not isolated to this market segment. Purpose-built rental buildings are also facing rapidly increasing insurance premiums, leading to a call this summer from LandlordBC to the Government to broaden the scope of its regulatory intervention.