Josh King on the recent changes to the condominium insurance market

Adrian:

I'm joined today by Josh King, President of Ruban Insurance. Ruban Insurance is a Winnipeg-based commercial insurance brokerage. Do I have that right, Josh?

Josh:

Absolutely. That's correct, focused on commercial, yes.

Adrian:

Josh, how long has Ruban Insurance been in business, and what is your niche? What's your avatar client?

Josh:

Ruban Insurance started in 1988 as a commercial insurance focused brokerage. So we have not aggressively pursued auto pack and other retail business. We've focused on commercial needs of clients, so businesses, non-profits, condo corporations themselves, property managers, property developers. The property management, development, condo corporations, apartment buildings does comprise a large percentage of our total business. That's the industries we have catered to.

Adrian:

In today's episode, I want to talk to you a little bit about condominium corporation insurance. Specifically, what has changed with insurers' appetites regarding condominium corporation insurance in the past year?

Josh:

Well, we found probably maybe 18 months ago or more, it started where certain insurers that traditionally have been our go-to companies for condo corporation insurance had started to back off. They started to reduce the amount of capacity they wanted to offer. In other words, if they typically would write a $10 million building a hundred percent, now they only wanted to do 70% or 50%. And we started seeing price increases. And we saw a little bit of this more maybe five to 10 years ago as well, but there was always another insurer that was coming into the marketplace willing to pick up what other insurers maybe were found to be less desirable. And that kept the rates very competitive for the last 10, 15 years.

Josh:

But over the last 18 months specifically, insurers over the years, the rates have been aggressively dropped year after year. And they've come down, and they've come down. And at the same time, claim costs have increased. So a water damage claim that might've cost $5,000 or $10,000 to clean up 10 years ago, now we find that with asbestos remediation in older buildings with standards for cleaning up water to reduce the chances of mold, the costs have just escalated. So while rates have gone down, building values have gone up, construction costs have gone up, and the cost to remediate have gone up exponentially. So insurers have started to increase rates and started to back off on especially older properties or ones that may not have been fully updated with modern construction standards.

Adrian:

How long has it been since the condominium insurance market has gone through this cycle?

Josh:

The last major hard market cycle, we call it, was after 9/11. And that was a reflex to global events, the terrorism, obviously, event. However, ever since then, that lasted a couple of years, but then insurers became more aggressive in growing their portfolios again. And rates have either come down or stayed the same for the most part since then.

Adrian:

How long does it take for new competitors to step into the marketplace to even things out again? Or is that not even going to happen this time around?

Josh:

Well, this time around we've got the added complication of the coronavirus and COVID, which has put all of the insurers behind by about a year. Many of them have just stopped pursuing new business this year or are re-underwriting their entire portfolios instead of concentrating on writing new business. So it's going to take at least a year or two of positive claim results, with claims being down, in order for insurers to start looking at more aggressively writing this business again. And it would take that long for another insurer, maybe that's in the United States or overseas, to look at the Canadian marketplace. They need to see positive claim results, profitability over at least a year or two before they'd look at coming into the marketplace.

Adrian:

Is this a Canada-specific problem? Or is it happening in North America as a whole?

Josh:

No, it's happening in North America as a whole. The California wildfires are a huge thing, hurricanes over the last number of years. So it is definitely North America as a whole.

Adrian:

Most importantly, what can condominium corporations do to be proactive as it pertains to their insurance?

Josh:

They need to spend more time trying to mitigate and prevent losses from happening. So the biggest contributors to rates going up is water damage, as I was saying before, on the cost to remediate. So by keeping buildings updated in terms of older buildings might have galvanized plumbing. Older plumbing systems need to be upgraded to current standards. Plastic water lines on appliances like toilets and washing machines should be replaced with graded metal water lines. Those are things that you can do for relatively low cost. Hot water tanks need to be replaced on a regular basis rather than waiting for them to fail, or drip trays can be installed underneath to prevent. And just having a regular maintenance plan with your property manager to check plumbing systems, check connections, regular mechanical inspections.

Josh:

Those are the things they can do, and also build up reserves so that they can absorb smaller claims as they occur. Whereas traditionally, maybe you would have paid on a claim for a $5,000 incident. Well, now we would recommend that those be paid out of a reserve or a budget, and you save the insurance for when you really need it for the losses in the tens of thousands of dollars.

Adrian:

In the Manitoba Condominium Act, reserve fund studies are mandatory for condominium corporations and have to be updated every five years. Do you think, or have you seen, any claims for holding board members accountable to assure that they are in fact following those reserve funds study recommendations?

Josh:

We have not seen too many directors and officers claims in that respect. No, not at this point.

Adrian:

What would common sense dictate, just fiduciary duty of a board member, to assure that the capital asset is in fact upheld?

Josh:

Well, there's a duty of care there definitely on the part of the board members. Because if they fail to keep the building updated, and there's some expensive repairs or expensive deductibles or insurance claims that are incurred, other unit owners may hold the board members personally liable for their action or their inaction on the board. So it's crucial for those reserve fund studies to be done as mandated. And the reserves that are recommended that they be followed, because board members could be held liable for not following those and not taking that action.

Adrian:

Do insurers or insurance brokers offer any axillary services or consulting to help mitigate long-term insurance premium risks?

Josh:

Depending on the size of the condo corporation, regular inspections by the insurance company are fairly standard in the industry. And it's normal for them to come up with a list of best practice recommendations, as well as major concerns if they're seen. And the condo corp would be wise to follow those recommendations and get them completed and communicate that back to the insurance company so it shows that they're willing to do what needs to be done and to do their part to reduce the risk of loss

Adrian:

Standalone condominium corporation insurance versus a bulk or a master policy, is one better than the other?

Josh:

I would say traditionally, over the long-term, that the blanket was always the preferred method of property managers. It was a benefit for the condo corp to come on with a certain property manager because of economies of scale and rate reductions and that available. However, we found over the last couple of years especially, some of those blanket programs have started to collapse because of the poor loss record of certain condo corporations. In those cases, we've been involved with our clients and taking certain corporations out of the blankets and placing them standalone, if they have some major claim issues.

Josh:

And some other property managers have elected to not do a blanket. I still think there's some benefit to the blanket policy, all depending on the properties that are there. It just needs continual monitoring and review to make sure that the conduct corps without a bad claims history are not affected by the others.

Adrian:

Which insurance or insurers do you think have the most exposure to the Winnipeg condominium marketplace?

Josh:

Currently, I would say that Wawanesa Mutual has a very large portion of the marketplace as some of the larger, publicly traded companies. Aviva, Intact used to do a lot of condo corporation business. And then locally here over the last five, six years, Wawanesa really undercut them from a rating perspective, as well as a couple of the other mutuals, Portage Mutual, Red River Mutual, were very competitive. And so they do a lot of that business right now, and they're quite heavily exposed to it. Wawanesa's been doing a lot over the last 18 months to reduce their exposure to it now, which has resulted in some other insurers now coming into the space, albeit at higher rates and terms, which is driving up the pricing,

Adrian:

And should an insured property feel comfortable or confident, as confident with a mutual versus a publicly traded insurer?

Josh:

Well, mutual companies still have an obligation to produce... to not lose money. So I would say that there is an advantage somewhat in being with a mutual in that they don't have the same profit requirements that a publicly traded company has. The publicly traded company has to answer to the shareholders and deliver a certain rate of return. Whereas the mutual companies need to cover their costs, and they can't lose too much money. But they can operate at slimmer margins than some of the publicly traded companies. But what it all comes down to is their appetite at any given time. It's very possible than a year or two, some of the publicly traded companies are looking for growth, and they end up coming back more into the marketplace and being more competitive than the mutuals again. It's all up to your insurance broker to regularly survey the marketplace on your behalf, just to make sure you're getting the best coverage and pricing available.

Adrian:

And in most cases, that happens on an annual basis when the policy up for renewal?

Josh:

That's correct.

Adrian:

Any of the effects on condominium corporation insurance, is any of that being felt in multifamily, residential rental?

Josh:

Yes, definitely as well, especially if we look at Winnipeg specifically. There are certain areas of the city that have seen much more loss activity, especially in terms of fires. So some of the inner city streets have seen a lot more of that. Even in the news, you can see that over the last 12 months. And so a lot of it's postal code driven. So you'll find even on multifamily, insurers are very hesitant in certain postal codes as opposed to others. But we find even in those other postal codes, in say the better areas or the newer areas of town, we found that even they are being a lot more selective and increasing rates similar to condo corporations. Because they've incurred the same losses in apartment buildings that condo corps have, multi-family getting the water damage and the fires as well.

Adrian:

You clearly have a lot of expertise in the commercial real estate market. What do you love about Winnipeg real estate?

Josh:

Well, I love the fact that Winnipeg real estate, we don't see the same swings and values that we see in Toronto, even as an investor myself in Winnipeg real estate. Over the long run, Winnipeg is a great place to invest money in. It's steady through good times and bad, economically, and that's what I love about it. And I'll continue to invest in it.

Adrian:

So for people who have commercial insurance needs, how do they reach your company?

Josh:

Well, you can reach our website www.rubaninsurance.com. That's R-U-B-A-N insurance.com. And look up our number there. You can reach us at (204) 988-5000, and you can reach one of our qualified staff.

Adrian:

Thank you so much, Josh, for spending this time with us today. That was Josh King of Ruban Insurance in Winnipeg. Thank you, Josh.

Josh:

Thank you.