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Ten on the 10th: Strata insurance premiums Q&A with Luke Mills of Megson FitzPatrick Insurance

Luke Mills of Megson FitzPatrick Insurance discusses insurance premiums as they pertain to strata properties, and what effects COVID-19 could have on local building owners and operators.

Ten on the 10th: Strata insurance premiums Q&A with Luke Mills of Megson FitzPatrick Insurance
Ten on the 10th
Citified's Ten on the 10th is a monthly question-and-answer segment connecting our readers with the insight and knowledge of Victoria's top real-estate and business professionals.
March's Ten on the 10th features Luke Mills, Account Executive at Megson FitzPatrick Insurance, a Victoria-based insurance brokerage.
Asking the questions is Ross Marshall, Senior Vice President of the Victoria offices of commercial real-estate brokerage CBRE. As a leader in facilitating large-scale commercial real-estate transactions throughout the Capital Region – which include apartment complexes, industrial retail and office properties, and land/development opportunities – Ross and his team are at the forefront of market-leading real-estate transactions on Vancouver Island.
Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you.
Please describe to our readers what Megson FitzPatrick Insurance is, and how it came to be one of our region’s largest insurance brokers.
Megson FitzPatrick Insurance is a local, full service, independent insurance broker. Founded by Michael Megson and David FitzPatrick in 1968. Today, we have a team of over 100 talented people.
Approximately half of our team work in the world of business (AKA commercial) insurance; this includes commercial marine, surety bonding and commercial fleets. The balance of our team provide home, auto, motorcycle, personal marine, benefits and life insurance solutions. 
Three years ago we partnered with the Roger Insurance Group to expand our capabilities across Canada. More recently we engaged with a partner called Globex International to help us better serve clients with operations or assets outside of Canada.
We have tremendous leadership across the firm embodied by President and COO Laura Bolster. Our culture is our real strength, epitomized by our core values: Set the Bar High, Do the Right Thing and Deliver Results.  We adopt a “coaching” model of leadership to help our team members identify and pursue their professional goals so the next generation of brokers will set the bar even higher. 
Our customer service philosophy is to Educate, Advocate and Build Loyalty. When applied to business insurance this means; Educate our clients about risk and what tools (insurance or otherwise) are available to manage them; advocate on their behalf when dealing with underwriters, claims adjusters, etc., and build loyalty by going the extra mile to make people’s lives easier.
We have risk specialists to help our clients identify potential problems and strive to avoid claims. When claims do occur, we have a dedicated in-house claims team who help ensure a fair process and settlement.
How did you get into the insurance brokerage industry?
I began my insurance career in Toronto in the mid-1990’s at a small family brokerage. When I moved to Victoria in 2001 and was introduced to MFI, I was immediately struck by the positive culture, quality of people and the same client-centric philosophy I was taught. I knew I had found a new home. I started on the MFI motorcycle insurance team in 2002, moved into the business division that same year, and was fortunate to be invited into partnership in 2008.
Our business insurance division includes teams dedicated to the construction and development ecosystem; developers, consultants, builders, trades, suppliers, etc.  We also have teams focused on real estate including, industrial, retail, office, multi-unit residential, custom homes and everything in between.
We represent our clients to dozens of domestic and international insurance companies including Lloyds of London with whom we’ve had a relationship for over 30 years. Four years ago we partnered with the Roger Insurance Group to expand our capabilities across Canada. More recently we engaged with a partner called Globex International to help us better serve clients with operations or assets outside of Canada.
With COVID-19 on the minds of many, can you speak to the insurance-related effects of the coronavirus on local building owners and strata councils?
We have been receiving numerous inquiries from businesses asking if their insurance policies will respond to reduced customer demand, operational disruptions and impacts on their workforce resulting from the recent outbreak. Unfortunately, under standard property policies, physical damage to the insured premises is required to trigger a covered loss and few Insurers offer standalone pandemic insurance. We recommend you contact your broker to understand the scope and limitations of your insurance program.
From a broader risk management perspective, we strongly encourage businesses to adopt preparedness strategies that include emergency response, business continuity and crises communication.
Please listen to our public health experts for guidance as the situation unfolds and curate news about the outbreak from trusted sources.
Coronavirus aside, we’ve heard of late how insurance premiums for multi-family buildings, particularly condominium buildings, are rapidly increasing. What’s going on?
 After years of competitive market conditions, we have transitioned into a “hard” market characterized by reduced competition and capacity, higher premium rates and deductibles and stricter underwriting. There are many contributing factors but, in a nutshell, insurance companies are paying out more in claims and expenses than they collect in premiums. Also, due to the sustained low interest rate environment, Insurers are unable to offset claim losses with investment income and have therefore renewed their focus on risk-based underwriting.
The hard market will be felt more acutely in certain industries, in part because those industries have experienced falling rates and diminishing profitability for several years.
What are the costliest claims for insurers to address, and how common are they?
Water damage continues to be the single greatest cause of loss when it comes to multi-unit residential buildings. In our densifying communities, bigger, taller and more expensive buildings mean the potential for large losses continues to increase.
We are seeing see rising premium rates and deductibles, especially for properties that have experienced frequent and/or severe claims. Insurers may also look more carefully at the age and condition of buildings and how well they are managed and maintained. Older buildings can also be a challenge as damage may require hazardous material remediation and code upgrades.
In much of BC, including Vancouver Island, we also have exposure to potentially catastrophic losses such as earthquakes, tsunamis and wildfires, which increasingly figure into Insurers premium calculations.
What can developers, builders and property owners do to mitigate rising insurance premiums?
The only real long term solution is a reduction in the frequency and severity of claims.
With new construction, consider tankless hot water systems, the installation of floor drains and/or water leak and overflow detection and shut-off technologies, and strive for best in class quality assurance to prevent losses arising from appliance water lines and plumbing fixtures.
Building owners and operators should adopt a proactive approach with respect to regular maintenance and updating/upgrading, and consider higher but manageable deductibles and not making claims if the loss does not exceed the insurance deductible by a reasonable margin.
Is there a role for government in light of what’s happening with rates?
Certainly, and an avenue for the condominium industry to consider is to lobby the provincial government to adopt changes to the Strata Property Act such as introducing caps on loss assessments a strata can charge an individual unit owner.
How serious is the issue of stratas no longer qualifying for insurance, and is this a wide-ranging problem?
Recently the news has been filled with some discouraging stories about stratas experiencing stratospheric rate and deductible increases or being unable to secure insurance at all.  Very few stratas I have heard of cannot access insurance and those with the most dramatic increases seem to be large properties that may have experienced challenges with the frequency or severity of claims.
For the average multi-family building, where do you see premiums heading?
The vast majority of strata’s will likely experience less dramatic increases that bring premium rates back to where they were several years ago.
The insurance market is experiencing a natural correction as we are coming out of a long period of depressed pricing. Over the next couple of years, premium rates will likely reach an equilibrium.
Knowing what we know, in that insurance rates are likely to rise for buildings considered high-risk, what should stratas take away from this Q&A, and building operators or owners adopt into their best-practices procedures?
At the end of the day, insurance is only part of a sound risk management program. We strongly recommend that stratas and building operators work with their brokers and other strategic partners to identify, prevent and mitigate risk. It will protect their business and help their broker ensure the best outcome when negotiating insurance programs unique to each property. C
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 Article resources

  • Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you
  • View CBRE Victoria's website here
  • View Megson FitzPatrick Insurance's website here
  • 2018
    • October, 2018: Reed Kipp of Devon Properties talks about Victoria's rental housing industry
    • November, 2018: Business Development Bank of Canada's Chris Boissevain talks about interest rates
    • December, 2018: Aryze Development's Luke Mari and Ryan Goodman talk about real-estate development
  • 2019
    • February, 2019: Phung Horwood's My Phung talks about real-estate appraisals
    • March, 2019: Luke Mills of Megson Fitzpatrick Insurance talks about the insurance industry
    • April, 2019: Greg Damant of Cascadia Architects talks about architecture in Victoria
    • May, 2019: Real-estate development with Robert Fung of The Salient Group
    • June, 2019: Rental housing industry Q&A with David Hutniak of LandlordBC
    • July 2019: Harris Green redevelopment Q&A with Mark Chemij of Starlight Investments
    • August 2019: Land remediation Q&A with Harm Gross of NEXT Environmental
    • September 2019: Business banking Q&A with Raj Wirk of Coast Capital Savings
    • October, 2019: Real-estate development Q&A with Mike Miller of Abstract Developments
    • November, 2019: Real-estate development Q&A with Byron Chard of Chard Development
    • December, 2019: Interest rate and commercial mortgage brokerage Q&A with Dave Ganong of Canada ICI Capital
  • 2020
    • January, 2020: Real-estate development costs Q&A with Doug Foord of Invictus Commercial Investment Corp.
    • February, 2020: Private lending and the mortgage industry Q&A with Len Shorkey of Shorkey Mortgage Corp.
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