Tuesday, February 25, 2020

Climate Breakdown - the Condo Impact

Climate change is hammering condo owners in British Columbia.

Over the last year some condo owners have watched their insurance premiums soar by 400 per cent. Some condos have become uninsurable. Insurers are refusing coverage.
“The government's really going to have to step in and do something,” said Chris Stepchuk, Managing Broker and Co-Owner of Fort Park Property Management & Real Estate. 
Stepchuk manages properties across the Lower Mainland. 
"We've got a few buildings that just right now can't seem to get insurance. They've been dumped essentially and are in a real bind,” said Stepchuk.  
“They have to have insurance for their mortgages, the strata property act says they have to have insurance, they won't be able to sell or buy or really do anything without insurance,” explained Stepchuk. 
Experts say climate change is partly to blame for the spike. Recent natural disasters have led to massive payouts. 
That financial risk has, in some cases, made being in the insurance industry unappealing and unprofitable.
It was around this time last year that Munich Re, one of the world's largest re-insurers, warned that climate change could make insurance unaffordable for most homeowners.  The company's chief climatologist, Ernst Rauch, told The Guardian:
“If the risk from wildfires, flooding, storms, or hail is increasing, then the only sustainable option we have is to adjust our risk prices accordingly. In the long run it might become a social issue,” he said after Munich Re published a report into climate change’s impact on wildfires. “Affordability is so critical [because] some people on low and average incomes in some regions will no longer be able to buy insurance.”
Most people entering the housing market require mortgage financing. Mortgage lenders want the protection of property insurance. No insurance, no mortgage loan. No mortgage loan, no home buyer. Remove enough prospective buyers from the market and property values fall, in some places precipitously. That sends owners streaming to their elected representatives, demanding relief.

The US eastern seaboard is an example of what comes next. As private insurers leave the market, the government steps in. Today in hurricane prone regions that falls to FEMA, the Federal Emergency Measures Agency.

When FEMA began writing homeowner policies it tried to set premiums close to historic levels. Then FEMA found itself in the same jam that drove private insurers out. It was paying catastrophic loss claims on the same property, over and over and over. There were anecdotal examples of some people recovering the value of their home five times. Some homes never were fully repaired before the next devastating storm hit.

FEMA thought it should be on a self-financing or break even basis. Then those homeowners discovered that would mean a huge increase in their insurance premiums. Cue the indignant howling. It didn't help that the fury was disproportionately coming from red states. Republicans, fearing a backlash at the polls, scrapped the pay-as-you-go idea and the problem is still unresolved last I checked.

I'll bet plenty of those outraged homeowners don't even accept the reality of climate change. Like Trump's base they probably figure it's all a hoax. I read an interview with a southern real estate agent. She had inherited the family ante-bellum mansion on one of the Carolina barrier islands. Her insurance bill was going up $1,500 a month. She wanted to unload the place but feared she would get little for it because that insurance premium was money that otherwise would have gone into mortgage financing. She set to howling.

That's the thing with the modern carbon economy. It might be dandy for the fossil fuel industry and its political minions but somebody has to pay.  And neither Jason Kenney nor Justin Trudeau will be coming to the rescue. Their money has another purpose - fossil fuel subsidies.

What's going on today in Vancouver condos is just another climate change impact, one that's as real and hard as concrete. And no $30 per ton carbon tax will make the slightest difference.


Northern PoV said...

Climate change looms over-all but this situation may be more locally caused.

Well run Vancouver condo buildings - that have minimal past claims - have had normal increases in rates for the common areas.
But our deductibles increased dramatically (for flooding) from 10k to 50k prompting the individual owners to cover this in their own insurance (addition $50 for me)

Some condos have poor management/maintenance and AirBnB-type exposure.

But as for climate related threats - our front door is 12 m above sea level so I will likely sell if I live long enough & then think it will become a recognized factor in RE prices.

What elevation do you live at?

The Disaffected Lib said...

NPoV, I live on a small rocky promontory that stands from 40 to 60 feet above the beach. Many other parts of this town are much more exposed to sea level rise, storm surges, King tides, etc.

Anonymous said...

and, of course, it’s all Trudeau’s fault.

The Disaffected Lib said...

Anon 4:23 - what a profoundly stupid remark.

Trailblazer said...


parts of this town are much more exposed to sea level rise, storm surges, King tides, etc.

If memory serves me well there is a rew-ish real estate subdivision by the beach in Courtney or Comox that were wailing for protection, read bailout, when they realised that the ocean was a bit too close!

That is one end of the spectrum.
The other is that we still have condos that were poorly built to withstand the conditions of the wet coast!

Insurance is one of the biggest rip offs of all time.
Should the west coast suffer the effects of an earthquake then there will not be enough monies to settle all claims.

Alas , such is the fate of free enterprise.


Toby said...

The beautiful side of this is that you don't have to believe in global warming or climate change. You can blame greedy corporations, blame your insurance agent or whomever. Regardless, you will be forced to adjust to the risk. That means that many people will be forced to move out of flood plains or frequent fire zones or maybe just maintain their properties in better condition.

The Disaffected Lib said...

Let's remember that insurance companies are in the business of selling policies to earn premiums. No policies, no premiums, no insurance companies. That's why the insurance industry is so heavily invested in science and risk assessment. It comes down to an actuarial function. What am I likely to have to pay out in claims? What do I need to charge for premiums to meet those claims and still retain some profit? How low do I need to set those premiums to keep my customers from heading to my competitors?

They've been in the game since insurance was devised to cover the spice trade. That's several centuries. Modern corporations emerged from the same trade. Spice cargoes were apportioned into "shares" which were used by traders to spread the risks of losses at sea. Those wealthy enough to afford it, took out insurance (Lloyd's et al) to gain a competitive edge.

What the insurance industry has never experienced is something as globally threatening as climate change. That's why the industry retreated from selling coverage for hurricane loss along the US eastern seaboard. That's how FEMA was given the job.