Most condominium corporations understand the value of preventative maintenance. Roofs are inspected before leaks occur, and mechanical systems are serviced before failures happen. The philosophy behind these acts is simple: small, proactive investments today help avoid larger problems tomorrow. However, unlike assets with visible maintenance schedules, financial protection strategies can be more difficult to monitor. Insurance appraisals play an important role in bridging that gap. In today’s environment, reconstruction costs continue to evolve in response to changing market conditions, and annual valuation reviews help ensure a corporation’s financial protection keeps pace with the realities of current rebuilding costs. Just as preventative maintenance protects the physical longevity of a building, regular appraisal reviews help protect its financial longevity. 

Construction Costs Do Not Stand Still

One misconception surrounding condominium insurance is the belief that replacement costs change slowly or only during periods of significant inflation. In reality, reconstruction costs are constantly evolving. Over the past decade, general Consumer Price Index inflation has increased by roughly 29–30%. In contrast, construction costs for multi-residential buildings in the GTA have risen significantly faster, increasing by approximately 83% from 2017 to 2026, based on Statistics Canada’s Building Construction Price Index.

The construction industry has experienced particularly significant cost escalation over the past decade. While some post-pandemic pricing pressures have since stabilized, costs remain elevated compared to historical norms. For example, tariffs have pushed up costs for steel, aluminum, and lumber — materials critical to construction and repair — driving up condominium replacement costs.

Building code changes create additional pressures. A building reconstruction following a total major loss must comply with current building code and bylaw standards, not necessarily those in place when the property was originally constructed. Changes to accessibility requirements, life safety systems, energy efficiency standards, and environmental regulations can all increase reconstruction costs over time. These code-driven cost increases are easy to miss because they have nothing to do with market conditions — they only surface when a professional appraiser factors current code requirements into a rebuild estimate. Without a recent appraisal, a corporation has no way of knowing whether its coverage accounts for the cost of rebuilding to today’s standards, rather than the standards the building was originally built under. 

For condominium corporations, this means replacement costs can increase steadily even when the broader real estate market slows. 

The Risk Between Appraisal Cycles

Many condominium corporations complete an insurance appraisal and then give little thought to replacement costs until the next scheduled review several years later, while costs are quietly changing in the background. While insurance appraisals are being completed, many boards still may not review them or ensure they are completed to the cycle dictated in the declarations. Another issue arises when corporations let appraisals lapse, leaving the valuation to an inflationary number which boards need to sign off on, instead of having an independent third-party firm provide the valuation. This exposes boards to unnecessary risks and leaves the corporation exposed to shifts in construction costs. 

A corporation may complete an appraisal in Year One and feel confident that coverage is adequate for a handful of years following. However, if replacement costs increase gradually over the following several years, the corporation may unknowingly spend a significant period of time carrying insurance limits that no longer reflect current reconstruction realities.

When a new appraisal is eventually completed, boards are often surprised by what appears to be a sudden or significant increase in value. In reality, the increase is frequently the result of several years of accumulated cost escalation finally being captured. 

Underinsurance is a Risk Management Issue

For condominium boards and property managers, insurance appraisals should not simply be viewed through the lens of premium increases. Insurance appraisals are also not a discretionary exercise. Under Ontario’s Condominium Act, corporations are legally required to insure to their full replacement value — meaning an outdated appraisal is not just a financial exposure, but a compliance gap.

Their primary purpose is much more important: ensuring that the corporation carries insurance limits that reasonably reflect the cost to rebuild following a catastrophic loss.

If policy limits prove inadequate following a major insured event, the financial consequences can be substantial — and often mechanical, not just theoretical. Many property policies include a co-insurance clause: if a building is insured for less than the required percentage of its true replacement value, the insurer reduces the claim payout by that same percentage, regardless of the size of the actual loss. A corporation insured at only 75% of replacement value, for example, could see its payout reduced accordingly, even on a partial loss. When that gap surfaces, it rarely stays with the corporation alone. Recovery efforts become more complicated, difficult decisions must be made about funding shortfalls, and the shortfall is frequently passed on to unit owners through special assessments.

Regular valuation reviews help reduce this exposure by ensuring that insurance limits evolve alongside reconstruction costs. Viewed this way, insurance appraisals become less about compliance and more about risk management. 

Annual Reviews Create Financial Stability

The good news is that large valuation corrections are often avoidable. The most effective strategy is proactive valuation management: treating insurance appraisals as an ongoing process rather than a task completed every several years. 

Annual appraisal reviews or updates allow corporations to track changing reconstruction costs more consistently and avoid significant catch-up adjustments later on. Instead of experiencing one large valuation increase after several years of inactivity, boards are able to manage smaller, more predictable changes over time. 

The approach offers several benefits:

• Simplifies budgeting
• Makes insurance renewals more predictable
• Improves communication with owners
• Builds confidence that coverage matches replacement costs

Just as preventative maintenance initiatives reduce operational surprises, proactive valuation management reduces financial surprises.

Financial Maintenance Supports Building Longevity

Condominium managers spend considerable time developing maintenance plans designed to preserve physical assets and protect long-term value. Insurance appraisals deserve to be viewed through the same lens. Regular valuation reviews represent a form of financial maintenance — one that helps protect the corporation’s balance sheet, strengthens insurance placement, and supports long-term resilience.

By reframing insurance appraisals as an essential component of long-term risk management rather than a periodic compliance exercise, condominium corporations can better support both operational resilience and financial longevity. Because protecting a building’s future involves more than maintaining its physical assets. It also means maintaining the financial foundation that allows those assets to be rebuilt if the unexpected occurs. Boards and managers don’t need to wait for their next scheduled appraisal to start that conversation — a call to your appraiser or broker to ask whether an annual review makes sense for your building is a reasonable first step.

Carly Rowden is a business development associate at Normac, supporting strategic growth initiatives within the condominium sector through business development, educational programming, and event leadership initiatives. She helps foster industry connections and supports conversations around the understanding of replacement cost valuations. She actively participates in ACMO initiatives and is involved with both CCI-Toronto and CCI-Golden Horseshoe committees.
www.normac.ca
 

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