Condo complexity: How to advise clients when two types of policies are at play

For brokers, condo insurance may be one of the more challenging things to communicate to clients. As joint owners of the building, condo owners do not have just a single policy, they are also joint owners of the building’s insurance.

“There’s a lot to think about to ensure individual unit owner coverage aligns with the respective commercial policy,” says Jessica Asano, vice president of Thunderbird Insurance in Victoria, B.C., and president-elect of the Insurance Brokers Association of Canada. “It’s really important to break it down for each client.”

Condo owners frequently tell brokers they already have condo insurance, referring to the commercial policy that covers the building and common areas against property damage and strata liability. That leaves brokers with the important job of educating clients about the differences between the condo corporation’s commercial policy and the personal policy that unit owners are generally required to carry.

When selling a personal property policy to a condo owner, brokers must communicate important details about the two policies and how they interact.

Condo corporations, or stratas, each have individual bylaws, different coverages in their commercial policies, and rules applying to individual units as well. These large commercial policies often have incredibly large deductibles, too, for losses such as water, sewer backup, flood, and earthquake.

Under the condo corporation’s “master” commercial policy, they may charge back their deductible to a unit responsible for the damage, or if there isn’t a single one responsible, charge back the company’s master policy deductible to multiple unit holders.   

Under a standard personal policy for a condo owner, an insurer may reimburse the condo unit owner $25,000 for any deductible assessed under the condo corporation’s master strata policy. But Asano has seen commercial policy deductibles as high as $500,000, and so brokers need to ensure their condo owner clients can absorb as much of their share as possible.

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Brokers need to pay particular attention to educating clients about the consequences of not having enough coverage. Clients and even some newer brokers can underestimate how much it costs to replace a unit full of personal items, especially as costs such as debris removal may or may not be included under the policy limit for contents.

Asano cites an example in which a client makes a fire claim after fire retardant was used to stop the blaze and badly contaminated the unit. Hazmat crews had to remove everything before repairs could begin. In this case, the removal cost was included as part of the contents coverage. At $85,000 in contents coverage, the claims cost came close to exhausting the condo owners policy limit for contents — a position no broker wants to see for their clients.

“There is some added protection from companies now offering single limit in their condo policies,” Asano notes.

For example, instead of a policy that offers $50,000 for contents, including debris removal costs, or $50,000 plus a sublimit of 5-10% for debris removal, some policies offer a higher single limit that includes both. For example, a single limit of $60,000 that explicitly includes both contents and debris removal. It’s up to the broker to make this clear to clients.   

Brokers also need to distinguish between the owner’s insured contents and the structure of the condo unit at the time of purchase (i.e. walls, pipes, HVAC system, furnishings). For example, some consumers may think personal condo unit coverage is not required for the condo unit’s structure. They often believe they need coverage only for the replacement value of contents they bring with them.

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However, “most strata bylaws state the unit owner is responsible for any improvement or betterment to the unit; that the strata is responsible only for the original finishing when the building was first constructed,” Asano notes.

Brokers must therefore check with clients who purchase units in existing buildings if there could have been previous renovations and updates, even simple ones to a bathroom or kitchen. Every insurer has different wordings and coverage limits, so it is important to discuss the estimated cost of replacing anything not original to the unit, Asano advises.

Finally, not all unit owners realize they may be liable for damage to their unit caused by the negligence of adjacent unit owners. Claims go through their personal policy first. And even if the insurer pursues the party responsible afterward, the original claim may not be removed from their own claims history. 

“Ultimately,” says Asano, “the role of the broker is to make condominium insurance an understandable product using real-life examples that people can relate to. They need to ask the right questions, simplify things so the client can understand the importance of having the two separate policies, and ensure all gaps identified through a strata’s individual commercial policy and bylaws are filled in a way that protects their client from all possible scenarios.”