The landscape of property insurance for rental units in Canada is undergoing a significant transformation, posing substantial challenges for landlords and, by extension, the broader housing market. Recently, in an attempt to renew coverage for an investment property, several supposedly competitive insurance providers declined to offer a quote. Their reasoning was consistent: the property operates with a 60-ampere (60A) electrical service, and their minimum requirement for coverage is a 100A service. This seemingly technical detail unravels a much larger issue impacting a substantial portion of Canada’s rental housing stock and its affordability.
This stringent demand from insurance companies has far-reaching implications, particularly when considering the age of Canada’s rental housing infrastructure. A staggering eighty-two percent of Ontario’s purpose-built rental housing, for instance, was constructed before 1979. This historical context means that the vast majority of these buildings were originally equipped with 60A electrical service, or in some cases, even older 40A systems. The insurance industry’s current stance effectively mandates that residential landlords across the country invest hundreds of millions of dollars into electrical upgrades. This is ostensibly to mitigate risk, yet it also undeniably serves to massively increase Canadian insurance profits, placing the entire financial burden solely on the shoulders of residential housing providers and ultimately, their tenants.
One aspect of the insurance industry’s concern that holds some moderate justification is the use of fuse panels. Unlike modern circuit breakers, a tenant who repeatedly overloads a 15A line on a fuse panel might be tempted to replace the blown fuse with one of a higher rating, such as 20A or even more. Over time, this practice can lead to critical safety hazards. The electrical wires, not designed for such sustained loads, heat up excessively. This prolonged heat exposure causes the plastic insulation around the wires to dry out, become brittle, and eventually crumble away, exposing bare wiring. Such a situation dramatically increases the risk of electrical arcing, which can readily ignite surrounding materials and lead to a devastating fire. Therefore, the insurance industry’s push to replace outdated fuse panels with more secure and reliable circuit breaker panels is, from a safety perspective, a warranted demand that aims to prevent potential electrical hazards.
However, the costs associated with even minor upgrades are not insignificant. For example, replacing a single 60A fuse panel with an equivalent circuit breaker panel in a rental unit recently cost approximately $500 plus Harmonized Sales Tax (HST). While this individual cost may seem manageable, the broader demand to upgrade entire building services from 60A to 100A presents an entirely different financial and logistical challenge. Despite the industry’s concerns, a thorough search for empirical evidence linking fire-related claims directly to failed 60A electrical systems on the internet yielded little. The absence of widespread reports suggests that either such claims are statistically inconsequential or not publicly attributed to this specific electrical service rating. If 60A service truly posed a pervasive and significant fire risk, one would expect far more news coverage and data from safety authorities.
Furthermore, there is a distinct lack of official warnings or advisories from prominent regulatory bodies like the Canadian Safety Authority or the Electrical Standards Association regarding inherent concerns with 60A systems. This absence of formal alerts or documented risks further questions the immediate and widespread demand for wholesale upgrades. No credible evidence has surfaced to suggest that a properly maintained 60A service with a functional circuit panel poses any consequential or disproportionate risk compared to higher-amperage systems. This disconnect between perceived risk by insurers and documented risk by safety experts lies at the heart of the current dispute, suggesting that the insurance industry’s blanket refusal might be based on overly conservative or unquantified risk assessments rather than clear, empirical data.
In an attempt to creatively address the electrical capacity issue without a full service upgrade, some landlords might consider reducing electrical load by converting appliances. One such consideration was replacing all electric stoves with gas appliances. This conversion would effectively free up the 20A circuit typically dedicated to an electric stove, providing additional capacity for today’s tenants. Modern tenants often possess a greater number of high-power home devices – from multiple computers and large-screen TVs to gaming consoles and air fryers – which are frequently run simultaneously. However, this seemingly practical solution faces significant headwinds from emerging environmental policies and taxation. At least five major cities in the USA have already enacted bans on the installation of gas appliances in all new residential construction, with many more jurisdictions actively drafting similar legislation. This trend signals a broader shift away from natural gas use, driven by climate change concerns.
Compounding this is the Canadian federal government’s carbon emissions tax, which began at $20 per tonne in 2019 and escalated to $50 per tonne by 2022. Prime Minister Trudeau announced in December 2020 that this carbon tax is projected to reach an eye-watering $170 per tonne by 2030 – an 8.5-fold increase from its 2019 level. This escalating tax artificially and substantially narrows the cost efficiency spread between gas and electricity. What was once a clear business case for converting to gas appliances, often driven by lower operational costs, is now rapidly eroding due to punitive taxation, rather than inherent business economics. The financial viability of recovering electricity-to-gas conversion costs through rent increases becomes increasingly dubious, rendering this potential solution impractical and financially unsustainable for landlords.
Beyond the direct costs of upgrades, the regulatory environment for capital investment recovery further complicates the situation. Most Canadian provinces, where some form of rent control exists, allow landlords to recover capital investment costs through a mechanism often referred to as an “above guideline increase” (AGI). However, the specific rules and limitations significantly hinder large-scale projects like electrical upgrades. Ontario, home to approximately 40% of Canada’s population, has particularly restrictive caveats. It permits a maximum of only three percent of a property’s total annual income to be applied towards *all* capital costs invested in any given year, and for the two subsequent years. To illustrate, consider a 12-unit apartment building generating a gross income of $150,000 annually. Theoretically, the capital expense budget that could be passed on to tenants would be $150,000 x 3% = $4,500 per year, totaling $13,500 over three years for all capital expenditures claimed within that period. This amount is grossly insufficient for major infrastructure overhauls.
Moreover, the actual recovery rate is often much lower than the theoretical maximum. The capital expenditure can only be applied to tenants who were living in the building at the time the expense was incurred. New tenants do not pay for these historical upgrades, and existing tenants are not expected to cover the shortfall left by departed ones. Consequently, most AGI recoveries are substantially less than the allowable application amount. In the example of the $13,500 theoretical recovery over three years, the actual amount recovered might realistically be around $9,000 for the year, significantly impacting the project’s financial feasibility. Any new capital expenditure claim can only be appended after the previous three-year AGI recovery period has been fully completed. Upgrading the electrical service of an entire building is not a simple task; it requires replacing all wiring, meter bases, switches, and involves a slew of other legal and regulatory requirements. For the previously mentioned 12-unit property, the estimated cost for such an extensive electrical upgrade ranged between $60,000 and $75,000. There are no savings or incentives of any kind available to offset this massive expense, leaving landlords in an impossible financial bind given the AGI limitations.
Adding to the financial impracticality are the profound logistical challenges. A comprehensive electrical upgrade of a multi-unit building, such as replacing all internal wiring and external service connections, would necessitate that *all* tenants vacate the building, at least for a significant period and ideally at roughly the same time. This presents an enormous operational and legal hurdle. Ironically, if such a mass evacuation were to occur, the risk profile for the insurance company would likely increase substantially for the duration of the upgrade work. More fundamentally, Canadian residential tenancy legislation, particularly in provinces like Ontario, ensures strong security of tenure for tenants. This legislation makes it virtually impossible for a landlord to compel tenants to move out en masse for renovations, even for essential upgrades. If one were to poll 100 Canadian insurance underwriters, it is almost certain that 99 of them would be unaware of the specific nuances of residential tenancy legislation that effectively prohibit undertaking this kind of large-scale, mandatory upgrade, at least in key markets like Ontario.
Beyond the property’s internal infrastructure, the utility companies themselves impose stringent upgrade requirements. An older 60A, 12-plex building, for example, is likely connected to the electricity grid via a 400A transformer. An upgrade to a 100A service for each unit would necessitate replacing this with a much larger 800A to 1,000A transformer to handle the increased load. The utility company, however, might deny the upgrade request altogether if its broader grid infrastructure cannot handle the higher projected load. Even if a partial or full upgrade is permitted by the utility, the property owner is typically required to pay the full cost of that external upgrade, adding another substantial and often unpredictable expense to an already prohibitive project budget. This highlights a critical vulnerability in the entire infrastructure chain, where local property upgrades are beholden to regional grid capacities.
The problem is further exacerbated when considering future demands on the electrical grid, particularly the anticipated widespread adoption of electric vehicles (EVs). Environmental activists, populist politicians, and even some utility companies are pushing for implausibly rapid electrical service upgrades to accommodate EVs. Each EV charger typically draws 240A, similar to an electric stove, but unlike a stove, it generally draws power for a much longer continuous period during charging cycles. An average household may own two vehicles, with some affluent homes having four or more. Imagine the demand: requiring a 960A upgrade service *just* to accommodate four EVs in a single residence, let alone a multi-unit building. This monumental shift would place an unimaginable strain on existing electrical infrastructure. It is highly probable that many provincial and municipal electricity transmission and distribution systems simply cannot scale up quickly enough, or affordably enough, to meet the envisioned needs of widespread EV adoption, making current building-level upgrade demands seem modest in comparison to the looming grid crisis.
The current predicament of insurance companies denying coverage or imposing prohibitive conditions based on electrical service capacity raises serious legal and ethical questions. It is conceivable that a time may soon come when rental property owners begin initiating legal action against insurance companies for unreasonably withholding essential insurance coverage. Such lawsuits could be premised on the legal argument of “denying a vital service.” This concept parallels existing government regulations that prevent landlords from denying tenants heat, electricity, and water, even if the tenant is failing to pay their bills. If landlords are legally obligated to provide these vital services, yet are simultaneously denied the necessary insurance coverage to operate their properties safely and legally, it creates an untenable and potentially litigious Catch-22 situation.
It is imperative that politicians and policy makers grasp the severity of this issue. Insurance companies that deny reasonably priced, or even *any*, rental property insurance coverage are placing a vast segment of the rental market at severe risk. This directly contributes to a further shrinkage of the already limited rental housing inventory and exacerbates the critical problem of housing unaffordability, particularly in high-demand regions such as Ontario, British Columbia, and potentially Quebec. If property owners cannot secure adequate building insurance – a fundamental requirement for financing and legal operation – they will be forced to sell or cease operating their rental units. This will inevitably lead to a decreased housing supply, pushing rental prices even higher and making homeownership an increasingly distant dream for many. Conversely, if rental owners can only find prohibitively expensive insurance policies, with no discernible return on investment (ROI) business case, these escalating costs will inevitably be passed on to tenants over time, further intensifying the rental housing affordability crisis and making life harder for vulnerable populations.
These cumulative factors also create ripple effects that prevent new home buyers from entering the market, forcing them to remain in rental housing longer. This increases unrequited housing demand, driving up prices and contributing to widespread unaffordability across the entire housing spectrum. For years, there has been strong advocacy for government intervention to regulate residential rental and purchase housing insurance, drawing parallels to the existing regulation of car insurance. Historical and legal precedents for such regulation exist, suggesting that it is a viable and potentially necessary path forward to stabilize the market. One such advocacy campaign can be found at www.change.org/regulateinsurance, highlighting the public demand for such oversight.
Perhaps surprisingly, the ultimate solution to this insurance conundrum may emerge not from government intervention, but from technological advancement, much to the potential chagrin of the traditional insurance industry. Incredible advancements in artificial intelligence (AI) are rapidly transforming various sectors, and insurance will be no exception. AI, with its capacity for processing vast datasets and identifying complex patterns, will undoubtedly perform a far superior job of assessing any kind of risk than any human underwriter ever could. AI algorithms can analyze historical claims data, property specifics, maintenance records, and real-time environmental factors to apply highly accurate metrics. These metrics can balance an insurance company’s profit motives with its actual claims expenses and, critically, evaluate the efficacy of its reinvestment choices. The critical question remains whether senior management within these established insurance giants will empower their AI systems to make truly autonomous underwriting decisions. However, the technological highway is littered with the remnants of hundreds of multinational corporations that failed to embrace evolving market demands and subsequently disappeared. While the insurance industry itself will not vanish, the fundamental way in which its business is transacted is almost certain to undergo radical transformation within the next decade.
In the interim, the current practice of denying coverage to reduce perceived risk, without demonstrable, quantifiable justification and objective reasons, is, in this author’s opinion, tantamount to monopolistic extortion. While these may be harsh words, if they reflect the underlying reality—which I believe they do—then they absolutely need to be articulated. Only government intervention possesses the power and authority to resolve this systemic problem in the short-to-medium term. Despite numerous attempts to bring this critical issue to the attention of government officials and leaders within multiresidential industry landlord associations, dishearteningly, little to no substantive action has been taken. This inertia allows the crisis to deepen, impacting millions of Canadians.
This current state of affairs brings to mind Robert F. Kennedy’s insightful quote: “Every society gets the kind of criminal it deserves. What is equally true is that every community gets the kind of law enforcement it insists on.” This sentiment can be directly applied to the plight of rental housing providers. They, in effect, are receiving the egregious increases in insurance premiums, property taxes, corporate taxes, fines, “cost recoveries,” and every other thinly veiled cash grab, precisely because they remain complacent or, perhaps worse, refuse to organize as a single, powerful entity. Until housing providers collectively choose to unmute their formidable voice and declare, unequivocally, “Enough is enough,” this cycle will persist. We, as providers of fundamental housing and assets, deserve well-earned and long-overdue respect from a society whose very foundation is built upon the essential services and infrastructure we provide. It is time for collective action and a demand for fair and equitable treatment within the economic and regulatory framework.