Buying a commercial property, whether amidst Toronto's vibrant energy or Vancouver's breathtaking scenery, is a major financial undertaking. But the journey doesn't end with finding the perfect property. Securing the right insurance is crucial, and this process can be surprisingly intricate, influenced by factors like geographical risks, property values, and government and financial regulations. Let's explore the key differences and similarities between insuring property in these two dynamic Canadian cities, drawing insights from a conversation with EQUA Specialty Risk Partners Corporation’s insurance experts Dan Fitzpatrick P.Eng, Kenny Shimokura, Matt Jardine, and Andrew J. Kaupe. A General Comparison Between Toronto and Vancouver Insurance providers assess risk differently based on location. Urban properties in Toronto might face higher risks of theft and vandalism, while coastal properties in Vancouver contend with the forces of nature. “There’s a very huge difference for sure,” says Dan Fitzpatrick, P.Eng, EQUA's National Technical Practice Leader. Toronto’s grid-like structure ensures easy evacuation routes, even in high-traffic situations. However, the risk of sewer backups and water damage due to heavy rainfall and aging infrastructure remains a significant concern. Vancouver faces the looming threat of wildfires and floods. The city's proximity to fault lines and reliance on highways built across valleys make it particularly vulnerable to natural disasters. The age-old debate of East living versus West Coast living takes on a new dimension when considering the impact of insurance coverage and premiums. Here are some factors that affect the process of getting sufficient insurance coverage despite the unique challenges of these two cities. Understanding Geographical Risks and Climate Concerns Vancouver and Toronto each present unique challenges when protecting your home from Mother Nature's fury. In Vancouver, the ever-present threat of a major earthquake looms large. Placement Broker Kenny Shimokura explains, "Earthquake is a major pain point; the closer you are to the coast and the fault line in the lower mainland, the higher your premiums.” This risk significantly impacts the overall insurance cost, with earthquake coverage often costing as much as an entire insurance policy in Toronto. What’s more, deductibles for earthquake damage are steeper in Vancouver, typically ranging from 10% to 25% of the insured value. Beyond earthquakes, Vancouver faces increasing flood risks due to intensified rainfall and "atmospheric rivers." Kenny notes that: "It's tough with more markets starting to require third party appraisals to confirm that you're insured to value prior to providing a quote” leading to rising premiums and even refusals to provide flood coverage in certain areas. While Toronto may not face the same level of earthquake risk, it contends with its own severe weather events, including windstorms and ice storms. As part of the Golden Horseshoe – the most populated region in Canada – the Greater Toronto Area includes older neighbourhoods' aging infrastructure, particularly their sewer systems, which can be vulnerable to backups and flooding basements. Congestion and population density contribute to risk in other unexpected ways. Higher crime rates, increased liability for slips and falls, and the sheer number of people interacting with your property all affect your insurance needs. “There's the risk of theft, burglary, and vandalism. Those are all insurable interests, and then when it comes to third-party liability, those slips and falls,” explains Client Executive Andrew J. Kaupe, “if there's more people around, it’s more likely that somebody's going to get hurt.” Both cities, however, are grappling with the impacts of climate change, experiencing more frequent and severe extreme weather events. While Vancouver's climate is generally milder, both cities experience periods of intense cold. Dan Fitzpatrick, P.Eng., however, believes that "the cold really doesn't come into play as much as the tough perils—earthquake, flood, tornadoes.” The Impact of Property Values and Real Estate Markets Both Vancouver and Toronto have thriving real estate markets characterized by high property values. However, there are subtle differences to consider when it comes to insuring your investment. In Vancouver, insurers often require formal appraisals to accurately assess the replacement value of properties, especially for high-value buildings or those with unique features. Kenny Shimokura emphasizes the importance of appraisals, stating: “It's tough with the markets always changing to ensure that you're insured to value." The dynamic nature of the real estate market makes it vital for property owners to stay informed about property valuations and ensure their coverage keeps pace to avoid co-insurance penalties in the event of a claim. Toronto's older building stock may present its own challenges, with some properties featuring outdated wiring or plumbing that could affect insurance premiums with things like heritage property insurance. As Dan Fitzpatrick, P.Eng. points out: "Everything in Toronto is a bit older than Vancouver. So insurance companies do penalize them a bit more if they don't have the upgrades." Despite these differences, both cities adhere to the principle of insuring properties to their replacement value, not their market value. It’s important to note that “When we're talking about the property value, we're not talking about real estate value; we're talking about the cost to rebuild it,” emphasizes Client Executive Matt Jardine. This means the insurance payout should cover the cost of rebuilding the property to its condition at the time the loss occurred. Dan highlights this point: "You're insuring to replacement value, and that's how your insurance policy indemnifies." Both cities can see insurers applying inflationary increases to coverage amounts if property owners don't regularly update their property valuations. Government Regulations and Financial Requirements to Consider Government regulations and financial considerations further shape the insurance landscape in both cities. In Vancouver, insurers face limits on their earthquake exposure, which can lead to restrictions in coverage availability, especially in the later months of the year. "Some markets actually won't even quote in those later months in the Lower Mainland because they have just run out of earthquake capacity aggregates," says Kenny. "Reinsurance also plays a significant role in managing the high risk of catastrophic events, which can influence pricing and coverage options. Reinsurance is when an insurance company gets insurance to help them transfer risk should they take a major loss from claims. By doing so, risk can be shared between multiple insurance companies and help the overall insurance industry handle large claims that result from catastrophic (CAT) events or higher risk ventures. Dan explains this complexity: "You have CAT treaties, so all these incidents, after you get to about $30 million, maybe $50 million, it goes into a CAT treaty, which then goes out to other reinsurers." As potential losses rise, the cost of acquiring reinsurance increases. This can leave markets withdrawing capacity and/or increasing insurance rates. The Office of the Superintendent of Financial Institutions (OSFI) oversees the insurance industry across Canada, ensuring that insurance companies maintain sufficient financial resources to cover potential claims, including those arising from catastrophic events. "They have you model an earthquake, and you have to be able to withstand the financial test so that you can pay those claims out," explains Dan. Lenders in both cities typically require property owners to maintain adequate insurance coverage as a condition of their mortgage approval. Key Takeaways for Property Owners Understand your risks: Be aware of the specific geographical and climate-related perils associated with your chosen city. Obtain regular appraisals: Keep your property valuations current to ensure you have adequate coverage. Work with a knowledgeable broker: Seek guidance from an experienced insurance broker who can help you navigate the complexities of the market and find the best coverage for your needs. Review your policy annually: Ensure your insurance policy continues to meet your needs as your circumstances change. Take Proactive Steps to Insure Your Property By taking these proactive steps, you can ensure your property is adequately protected, providing peace of mind and financial security whether you choose to invest in Vancouver or Toronto. Understanding the nuances of your location is key, and recognizing the interplay of geographical risks, property values, and government regulations allows you to make informed decisions to protect your investment and gain peace of mind. Ready to connect with our team of real estate insurance experts? Send an email to findoutmore@equaspecialty.com today.
Thought Leadership 5 Things Every Property Owner and Manager Should Know About Commercial Property Insurance
