Earthquake insurance has been a hot topic in recent years in Canada. According to a recent geological survey of Canada, BC is due for a large earthquake with an estimated 30% probability of it happening in the next 50 years. The Globe and Mail recently published an article predicting that a major earthquake could trigger a deep financial crisis.  Media coverage of earthquakes in distant countries has left the world shocked and many British Columbians have started to ask what the risk is, here on our doorstep, for good reason.

In BC, it is estimated there are approximately 40,000 Strata Corporations containing in excess of 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 to purchase by Strata Corporations in BC and the vast majority of such 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

Strata Plan EPS1234, Happy Street, Vancouver. 100 units.  

Total Insurance Value

$60,000,000

Earthquake deductible

10%

Total Deductible for Strata

$6,000,000

 

As illustrated, the deductible amount can be considerable for a Strata Corporation and there is a more than likely chance that 1) the earthquake insurance policy for your Strata will not be triggered as the damage will be below the deductible and 2) there will not be enough money available to the Corporation 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. As an owner, in the event there is not sufficient funds available for the Strata to pay the deductible, you would be assessed your portion of this significant 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.

 

1)      Earthquake Deductible Buy Down

Today, a Strata Corporation can buy down the deductible to as low as 5%. This cuts the financial risk to at least half for owners. We strongly recommend Stratas consider this relatively new product when going through their next insurance renewal.   

 

2)      Personal Insurance

While the new Earthquake deductible buy down product provides some relief, there is still an exposure for owners. Many people believe they will get relief from the Federal and/or Provincial governments and, 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.

Remember; for your building the best insurance advice you can get is from a specialized Strata insurance broker and they may also be able to refer you to a capable personal lines broker who understands the risks of a Strata Corporation. To get further details here are some helpful resources:

http://www.ibc.ca/ns/home/types-of-coverage/optional-coverage/earthquake-insurance

http://www.theglobeandmail.com/report-on-business/financial-sector-faces-systemic-risk-tied-to-earthquake-report/article31241078/

www.publicsafety.gc.ca

www.ibabc.org

0 Comment
Add a new comment

No comment.

Be the first to comment!

All fields identified by an asterisk (*) are mandatory.