Guide
How insurers look at your reserve fund
When an insurer assesses a condominium or strata building, it is pricing risk: how likely the building is to have a claim, and how large that claim could be. The reserve fund is part of that picture. A current reserve fund study or depreciation report shows the insurer what condition the building is in, what work is coming, and whether the money is there to do it.
What an insurer is looking at
Condition of the big systems
Roofs, plumbing, electrical, heating, the building envelope and anything that can leak or fail. Older components near the end of their life are where large claims come from, especially water damage.
Whether there is a plan
An underwriter wants to know that the corporation knows what it owns, what condition it is in, and when each major component is due for repair or replacement.
Whether the money is there
A plan only reduces risk if it is funded. A reserve fund that can pay for the work when it comes due means aging components get replaced on schedule instead of being patched until they fail.
How the building is maintained
Maintenance records, recent upgrades and how quickly problems are dealt with all tell an insurer how the building is likely to perform over the policy term.
Where the study comes in
A reserve fund study or depreciation report answers most of those questions in one document. It inventories the common property, records the condition of each component with photos, estimates when each one will need repair or replacement and what that will cost, and sets out the contributions needed to pay for it. For an underwriter, that is evidence that the building's risks have been identified and are being managed.
The reverse is also true. A building with no current study, or a study that shows major work due with no money set aside, is harder for an insurer to assess, and uncertainty is something insurers price in. When a component fails before it is replaced, the result is often an insurance claim, and a history of claims follows the building into every renewal.
Making it count at renewal
- Keep the study current. A report that is several years out of date describes a different building. Updating the plan each year, as myRPlanner does with our Standard and Premium studies, keeps the evidence current between studies.
- Share it with your broker. Brokers can only present what they have. Give them the study, recent maintenance and upgrade records, and anything already completed from the plan.
- Act on high-risk items first. Roofs, plumbing and anything that can cause water damage matter to insurers most. Doing that work on schedule is good for the building and for its insurance record.
- Keep it separate from the appraisal. Your insurer sets the amount of coverage from an insurance appraisal of rebuilding cost, a different report from your reserve fund study.
If your reserve fund is short, see what a board can do when the reserve fund is underfunded.
Common questions
Does a reserve fund study affect condo insurance?
It can. Insurers price a building on its risk, and a current reserve fund study or depreciation report is one of the clearest records of the building’s condition and of the corporation’s plan and funding to look after it. Giving your broker that evidence can help at renewal. It does not guarantee any particular coverage or rate.
Is a depreciation report the same as an insurance appraisal?
No. A reserve fund study or depreciation report is a long-term plan for repairing and replacing common property. An insurance appraisal estimates what it would cost to rebuild the building, which is what the insurer uses to set the amount of coverage. They are separate reports for separate purposes.
Should we give our study to our insurance broker?
Usually, yes. A broker presenting a building to insurers can only work with the information they have. A current study with photos, condition ratings and a funded replacement schedule shows the building is being looked after. Ask your broker what they want to see.
What if our study shows a lot of work coming due?
That is what a study is for. Insurers are generally more concerned about aging systems with no plan than about a building that has identified its work and is funding it. Acting on high-risk items first, such as roofing and plumbing, is sensible for the building and for the insurer.
Is your study current enough to show your insurer?
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