How building code changes impact farm building insurability

Changes to Canadian building codes will increase building claims costs for insurers and could result in underinsured properties, a farm insurance expert warns.

Updates to the 2020 edition of the National Building Code of Canada (NBC) enhance the structural integrity of large farm buildings, increasing resilience to more frequent and severe wind loads and seismic activity. Each province or territory decides whether or not to adopt the NBC partially or in full, with different anticipated adoption dates.

In British Columbia, for example, changes to adaptable dwellings and seismic requirements come into effect Mar. 10, 2025. But farm building requirements have not yet been adopted.

Ontario adopted NBC 2020 with variations, including requirements related to farm buildings. Ontario’s building code came into effect Jan. 1, 2025, with a transition period allowed up to Mar. 31, 2025, under specific circumstances outlined in legislation.

The added structural integrity requirements translate into more labour, material and engineering costs, says Ken Worsley, chief operating officer at Nova Mutual Insurance Company. “And as insurers, we would have to replace these large farm buildings after a loss [in compliance with] this new code.”

Worsley says he’s factoring in an additional 15% in building costs to comply with the new code, meaning a $5-million build under the old code would now cost an insurer $5.75 million.

The Canadian Farm Builders Association (CFBA) suggests Ontario’s new building code may result in a -10% cost to material and construction when prefabrication and/or site and design parameters are favourable, and as much as a +35% cost to material and “construction in projects with unfavourable site and design parameters.”

Insurance implications

From an insurance standpoint, this means if a building constructed last year burns down and is rebuilt exactly the same way in 2025, the construction costs will be, on average, 15% higher. This affects anything that qualifies as a large farm building under the code, such as confined livestock buildings.

“And that’s not really factored in when a company renews that policy,” Worsley says. “The broker has to be aware and make the client aware of that at their renewal; they need to up these limits because of these building code changes.

“Every one of those buildings now, technically, is underinsured unless that’s contemplated in the [rebuild]. When it comes down to it, your insurance limit isn’t going to be enough to satisfy the rebuild.”

Depending on rebuild costs, brokers may need to seek a subscription policy, or carriers may need to access the facultative reinsurance market. These code changes will impact the capacity issue in farm insurance, derived from the segment’s historical loss ratio.

In effect, building code changes, combined with the tariffs on steel and aluminum, capacity issues, and supply management challenges, will lead to a ‘perfect storm’ in the sector, Worsley says.

Ultimately, brokers will need to understand these increased building costs fully and explain them to farmer clients. “It behooves us to get this message out through the broker channel,” Worsley says, adding that his mutual insurance company is conducting seminars on the topic.

Worsley estimates about one-quarter of Nova Mutual’s business is farm insurance and “it’s an impact the entire insurance industry needs to address. We can’t have a quarter of our portfolio underinsured, and we also need to ensure our brokers are aware and clients are properly protected.”

This story is excerpted from one that appeared in the April-May print edition of Canadian Underwriter.