December 2016
A Tactical Approach to Condo Corporation Insurance Claims
It can be difficult for a condo corporation to decide when it is appropriate to file an insurance claim.
There are times when it is more economical to pay for repair work as an operational or reserve fund expenditure rather than filing an insurance claim. Understanding when this makes sense is useful.
Insurance companies exist to make money. As a condo corporation’s claim history and/or payouts increase, that corporation is deemed riskier and more likely to be subject to a risk premium. When an account becomes a loss to an insurer, that account could lose their insurance coverage.
Claim history is an important component of cost when it comes to insurance. Where there is a history of many or large value claims, a condo corporation can pay higher premiums or possibly be dropped from its insurance policy. Factors affecting this decision include cause of loss and amount of the deductible.
When damage is caused by an uncovered loss, or the damaged item is not covered, there is no claim to file. Any filing of a claim would become part of the claim history and not result in a payout by the insurance company.
A condo corporation deductible is likely to be at least $5,000, and possibly much higher. When a claim is below or even slightly above the deductible, it may be best not to file the claim. There is little to no benefit to doing so as adding to the corporation’s claim history can be costly.
There are risks when deciding not to file a claim. Should a smaller claim escalate to something more substantial, late reporting could impact on coverage. One way to mitigate this risk is for the condo corporation to increase their deductible in return for paying a lower premium. A prudent condo corporation would then set these funds aside for use in paying for damage repairs.
This approach transfers responsibility for certain insurance claims from the condo corporation to individual owners or residents. While individual suite repair costs may increase, there tends to be an overall benefit to condo owners.
