Volume 26, Issue Number 4, Summer 2022
Insurance Issues

Residential Real Estate Property Insurance

The Pandemic, a Historically Hard Market Cycle, and Record-Breaking Global Catastrophe Losses

By Stephen Skolny | Other articles by Stephen Skolny

The pandemic, a historic a hard market cycle, and record-breaking global catastrophe losses have challenged the property insurance market over the last 28 months in many ways.

As we head into 2022, a question that has been on everyone's mind is how have global events impacted real estate insurance and, what can I expect when budgeting for insurance premiums? These are some of our thoughts based on what we see happening in the marketplace.

How have major global events impacted residential real estate insurance?

The Pandemic
The good news is that from a physical property perspective, a pandemic does not cause physical property damage so this has had no real impact on property insurance. What we have seen at the start of the pandemic, is most insurance companies used this opportunity to create clarity to the absence of any property coverage by way of endorsing policies with a "communicable disease exclusion". These exclusions clearly define and exclude a communicable disease.

For commercial business owners, exposure to business interruption continues to remain a concern. In the first year of the pandemic, retail was amongst one of the hardest hit segments and more likely to request relief than office and industrial tenants. Landlords had to become more flexible with lease negotiations, rent deferrals, etc. With gradual reentry into physical spaces in 2021 and 2022, commercial real estate is going to see renewed interest from investors.

Extreme Weather
This past year insurers and taxpayers have also, continued to feel the impact and financial cost of a changing climate. Storms, floods, wildfires, earthquakes and other extreme weather events have caused a total of $280BN in damage and $120BN of insurable losses in 2021 according to Munich RE, one of the largest reinsurance companies in the world. When you do the math that is an increase of $114BN or a shocking 69% in a span of 2 years.

These repeating catastrophic insurable events affect the reinsurance market and eventually trickle down to impact consumers. Thankfully, rate and deductibles have increased to attract new insurer support over the last 2 years, which has created stabilization.

Claims across Canada are not provincial; they are the same insurance companies across Canada that share in the paying of all claims. Therefore, a flood in British Columbia, is being paid by the same insurance company that in on risk for a condominium in Ontario.

Hard Market
Insurers have faced multiple years of low investment returns and decreasing profitability. Combined with the pandemic and unprecedented economic uncertainty, it has led to one of the most extraordinary hard markets cycles in history. The only option left for insurers was to increase rates and improve their operations in order to return to profitability.

What Will Affect Your Insurance Premiums In 2022?
The answer to that question is; it depends. There are many considerations to take into account but here are the top five that could have an impact on your insurance in 2022.

Inflation.A shortage of labor due to the pandemic along with material cost increases have had an impact on replacement values which have seen an increase between 5-20% based on the leading property appraisers in the country. The increase in replacement values causes a direct impact on the property insurance premiums you pay.

Location as it relates to Catastrophic (CAT) events. Earthquake, flood & wildfire are three of the main CAT perils insurance companies review to qualify risks. Properties in higher risk areas could see a reduction in available insurance capacity meaning brokers will have to look further afield to find coverage.

Construction Type. Typically, there tends to be more insurance capacity in the marketplace for fire resistive properties than for wood frame properties due to the exposure of fire.

Claims History. Properties that have had an unfortunate claims history could see a reduction in available capacity and/or increased insurance rates and deductibles.

Maintenance. When insurance companies are qualifying risk, they look to see how the property is maintained. If you have an older building, insurers ask will ask questions such as when was the roof replaced, how the plumbing is maintained, etc. The key here is to open a dialogue and understand any impacts that could affect your property.

How can working with a broker help reduce my premiums?
A broker is a licensed insurance professional who understands your needs and helps source competitive quotes for condominium insurance. A broker reviews your individual insurance needs and recommends coverage solutions that best fit. Knowledge and expertise combined with access to a wide range of insurance companies allows brokers to do the shopping for you and find the best coverage pricing in the market to bring you savings and choice.