22 August 2019 13:30
Like the market of trucking, the insurance market condominium is closing for several years now. Insurers are moving away from the segment, which is struggling to reach a threshold satisfactory profitability. Others are tightening their underwriting criteria to cover only the buildings that have not experienced water damage.
The reform of the law on condominiums was sought and expected for several years : the first version date of 60 years. It is here that the project of act 141, and 150 before it is abandoned and that certain provisions be transferred to other projects of law due to lack of time to adopt it, on the scene.
The measures of these projects of law surrounding insurance of condominiums were generally well received by the industry. All rejoiced because of the new rules which would allow the syndicates of co-ownership will be in better financial health and better cope with the unexpected.
Years before you see the results
However, despite the good intentions of the legislator, the entry into force of these new rules will not improve the performance or outlook of the insurance sector of condominiums in the short term, says Pierre Gravel, a broker specializing in this segment at Lussier Dale Parizeau.
“This will take a few years. The insurers analyze the marketplace to see the profitability to determine their appetite according to their analysis. If they realize that there is a profitability, they shall take it down: a better appetite to cover the sector, ” he says.
Maurice Charbonneau, of the firm of Charbonneau, counsel, shows rather optimistic. “It’s not going to kill the market. The changes will, to the contrary, to bring the insurers to improve their practices. Only, they must offer an insurance product consistent. “
The unions need to do their part
The syndicates of co-ownership will also need to demonstrate better discipline, grade Yves Joli-Coeur, lawyer emeritus of the law firm De Grandpré Joli-Cœur , and a founder of the Grouping of the managers and owners of Québec (RGCQ).
Because for too long, prevention has been neglected. Now, ” it is necessary to make the management of risk with the syndicates of co-ownership and co-owners. Work with them to eliminate the claims. Be proactive and make recommendations, inspections, things that the insurers did not make it, ” explains Mr. Gravel. Even today, it is estimated that 90 % of the claims to co-ownership are related to water damage.
In Lussier Dale Parizeau, the procedure is that before serving a condominium, a building assessment should be made to determine the replacement value. The firm also requires that the building be insured in full, a practice that all brokers do not have. “It happens sometimes to see buildings that are not insured, only 70 % of their value, because the sector of insurance of condominiums is in crisis and that brokers are unable to place the risk,” says Mr. Gravel.
A bill not bold enough
Many believe, moreover, that the project of act 141 does not go far enough to improve the sector. It is the case of Mr. Gravel. According to him, several holes remain to be filled.
“It remains to be seen how the market of the condominium will react to [new rules],” said to Me Joli-Coeur. In addition to do not specify who should be named insurance trustees, not to determine what is a ” significant loss “, the new law does not provide for any specific provision relating to insurance of condominiums in phases, ” in spite of the peculiarities of this type of co-ownership of more frequent occurrence on the market of the building to residential use or mixed “, he says.
If adopted, the bill 16, which in particular governs the construction standards and includes a study of the pension fund, adds another layer of protection for the syndicates of co-ownership. “It will help to reduce the risk of loss in joint ownership, explain to Me Joli-Coeur. The study of the provident fund and the service book which would become mandatory under the proposed law 16 […] would allow to predict, in advance, the amounts required for the work to be engaged in a building. We found, on more than one occasion, that loss could have been avoided if the work had not been delayed for lack of knowledge and financial means. “
The franchises are they consistent with the civil Code of Québec ?
If the legislative changes do not improve the fate of the insurance sector of the condominium, the provisions of the new law surrounding the free of fonts of trade unions of condominiums come to fill a gap between the practices of the insurers and the civil Code of Québec.
A recent judgment dealing specifically with the issue highlighted this incongruity. Although the dispute concerns the right of subrogation, the judge Daniel Dortélius of the Court of Quebec posed the following question : “Is it consistent with the civil Code of Quebec to a syndicate of co-ownership to insure the building with a policy with a deductible […] ? “.
In regards to this part of the question, the judge did not come to a clear conclusion. “The defendants argued strongly that the article 1073 of the civil Code of Québec imposes an obligation on the union to ensure that all of the property against ordinary risks. It is an obligation of public order, in order to protect the co-owners in the event of a disaster and ensure the preservation of the building. They argue that the addition of a franchise in contravention of this obligation. This argument of the defendants is not unfounded, ” he wrote.
Cover the whole building
In effect, article 1073 of the civil Code of Québec stipulates that a syndicate of co-ownership ” […] must take out insurance against ordinary risks such as fire and theft, covering the entire building, excluding improvements made by a co-owner to his part. The amount of the insurance corresponds to the new value of the property, [ … ] “.
However, a deductible is an amount that is payable by the insured when a claim. According to the judges, this amount represents a non-insured the building, ensuring that the union does not completely satisfy its obligation.
How such a flaw was she able to persist for so long ? Hard to say, according to Me Joli-Coeur. “For the moment, the civil Code of Québec does not provide for any deductible insurance for owners. Section 1073 does not speak that insurance for the “new value” of a property. It is, therefore, to say that this article is not really respected to the letter, because insurers do not offer any product that does not have a deductible. “
Deductibles always been present
The insurance Bureau of Canada (IBC) notes that, despite the position of the judge Dortélius and robert and Me Joli-Coeur, the insurance contracts have always been assorted franchises. “It is a lever to prevention that can empower the owner and mitigate the risk. The deductible has an impact on the premium that is required, ” says Pierre Babinsky, director of communications and public affairs of the organization. He adds that the new articles of the civil Code of Quebec make explicit reference to the deductible of the condominium corporation.
In effect, the new law, which amends the civil Code of Québec, states that insurers are required to establish a franchise reasonable. The definition of a deductible is reasonable will be determined by way of regulation, which is not yet known. The legislature has until June 2020 for the publish, and until 2021 to implement it.
“The government is going to have a lot of difficulty to impose on the insurers a deductible reasonable “, believes Mr. Gravel.
“The industry always adapts,”
Mr. Babinsky noted, however, that ” the industry adapts its practices to the requirements of the regulations “. He adds not to be able to comment further since the regulation in this regard is not known.
It is, therefore, to say that the impact of these exemptions are reasonable, both on the unions of condominiums on the insurers, can only be assessed during the publication of the draft regulation dealing with the issue.
Robert argues that the objective of the changes surrounding the franchise need to accomplish the same goal that had the article 1073 of the civil Code of Québec : that 100% of cash is available to cover the cost of reconstruction of a building. “We can have a franchise reasonable, but the money must be found elsewhere. You may not need to beg for money to the owners through special assessments to fund it, ” he says.