Brokers urge strata clients to prepare depreciation reports

Strata councils in B.C. are required by law to prepare depreciation reports on the inventory and conditions of their units by the end of December 2013, although they can opt out of this requirement. Why brokers should urge their clients to prepare reports that insurers do not require…

Insurance brokers dealing in strata and condominium insurance should get behind the government’s legislative requirement to have all strata corporations file a depreciation report prior to the December 13, 2013 deadline, a B.C. strata broker told Insurance Business.

“At our [brokerage], we favour, very strongly, that every insured we have complete a depreciation report, and make sure that they fund it, so they can have great maintenance and protect the integrity of their buildings,” said Mike Valiquette of Hub International Coastal Insurance Brokers, a specialist in strata insurance. “That’s not because an insurance company said that they have to. It just seems to make sense.”

But while it make make sense, many brokers aren't taking this up with clients, in part because underwriters aren't providing any premium incentives to strata councils that use the reports. This may be a lost opportunity to provide value to a strata client by offering risk management advice, Valiquette says.

B.C.’s broker association has been reporting extensively on the province’s legislative requirement to produce a strata depreciation report by the end of this year. The legislation affects approximately 30,000 strata units built between 1984 and 1999. The reports contain a physical inventory of common property; anticipated maintenance, repair and replacement costs projected over 30 years; and a financial forecasting section that contains at least three cash-flow funding models for the contingency reserve fund.

Strata corporations of less than five units will be exempt from the requirements. Also, a strata corporation can exempt itself from the government requirement by passing a 3/4 vote resolution.
“At this point in time, underwriters have not suggested that that will be one of their underwriting criteria,” Valiquette said. “In other words, whether or not they would look more favourably on a strata that completed one, as opposed to one that doesn’t complete one.”

And so why should brokers encourage their strata clients to get it done?

The Insurance Brokers Association of B.C. (IBABC) lists several potential insurance implications. One is the potential impact on the directors and officers (D&O) insurance of strata councils that repeatedly defer such reports. The result could be higher liability claims for strata councils, leading to higher premiums for them as well.

Another reason is simply because risk management is part of the broker’s value proposition.
“It’s a tough line to walk [with strata insurance clients], because insurance premiums are going up, and this is just another $15,000 expense that they aren’t mandated to do,” said Valiquette. “I think there would be a lot of brokers who would back off and say, ‘Why would you waste the $15,000?’

“But we see the insurance claims that come from lousy roofs and leaking piping systems that need to be replaced, so there definitely is a need for us to get on board with depreciation reports and contingency reserve funds that are adequate to do repairs.”

Currently, B.C. legislation does not require strata councils to provide funds to repair damage listed in the depreciation reports. Nor does it outline who should be responsible for preparing the reports.

“Depreciation report authors are required to disclose in the report whether or not they have errors and omissions (E&O) insurance coverage,” the IBABC said. “Making E&O insurance coverage a requirement assists the strata council in qualifying a supplier and provides protection for them and their fellow unit owners.”

Keep up with the latest news and events

Join our mailing list, it’s free!