Renting to 3 or more unrelated tenants? You might have trouble finding affordable insurance

A Calgary landlord says one common insurance guideline that makes it difficult for landlords to rent to three or more unrelated tenants is getting in the way of providing affordable housing during a housing crisis.

Betty Ann Lough recently had to raise the rent for the three-bedroom rental property she's owned for 17 years in order to keep up with rising costs. 

So when her two "excellent" tenants asked to bring on another roommate to lower their rent, she quickly agreed.

"We want to still be able to have this house as affordable for people and help people with affordable housing, but still be financially viable as a rental property," said Lough.

"But when I went to get my insurance, the insurance company said, 'No, we will not insure a house with three unrelated tenants.'"

Lough says she reached out to four other insurance companies who refused to insure the property, citing higher risk with three unrelated tenants — even though she's previously had a family of three live in the same property with no issues.

After shopping around, she says she found one insurance company that agreed, but quoted her at more than double the cost: from $1,086 to $2,535.

"There's a lot of people that need places to live and this, I think, could be a big issue."

Lough says she's frustrated that in the midst of a housing crisis, when rents in Calgary are increasing faster than any other major city in the country and vacancy remains at a near-decade low, this insurance practice could be getting in the way of providing people with the homes they need.

She says she's especially worried about how students will find housing with this insurance policy in place, especially with all campus residences full across Calgary.

More tenants, higher risk

Rob de Pruis, the national director of consumer and industry relations for the Insurance Bureau of Canada, recommends that landlords shop around for commercial insurance through larger brokerages or direct writers — though he says it will likely be less widely available and more costly than residential insurance.

"Insurance fundamentally is about risk, and the more people that are sharing a particular dwelling unit, that risk increases," said de Pruis.

He says when a property is rented out to three or more unrelated tenants, many companies then consider it a "rooming house" rather than a rental. In their eyes, that means it becomes more of a commercial risk than a residential one, he says.

"That risk profile changes and not every insurance company would offer coverage for some types of risks. Those are internal business decisions for every insurance company."

Why can families of three or more be insured with residential insurance, then? de Pruis says it's all about what the companies perceive tenants to be doing on a day-to-day basis.

He says three unrelated tenants are thought to live more independently — cooking their own meals, running their own air conditioning units, maybe even using a hot plate if the kitchen is full. All of those things increase the risk of fire or other damage, he says.

With families, on the other hand, there's thought to be more collaboration, especially in the kitchen, which means less risk, he says.

As for renting to students, de Pruis says those properties would also fall under a commercial policy and any landlord renting to multiple students needs to ensure they're getting the right coverage.

"Remember to do your research and ask the questions and you should be able to find an insurance solution that meets your needs."

Ongoing challenge for landlords

The Alberta Landlord Community is an online community and educational resource for more than 4,000 landlords.

Co-founder MacKenzie Wilson says this is a challenge landlords have been facing for a while, and it's a good example of the head winds that come with trying to increase housing supply.

"It's definitely an opportunity right now to make some changes there," said Wilson.

He notes there are some insurance providers focused on rental-specific policies geared toward investors and landlords, and right now, the best thing people can do is shop around.

Shamon Kureshi, board member of the Calgary Residential Rental Association and CEO of Hope Street Management, says this is an added layer to the growing operating costs for landlords.

"While these cost increases are not limited to any one area, we note that insurance premiums have indeed been included in the inflationary pressure — be they with or without changes to the number of occupants in a home," said Kureshi in an email.

Taking the extra $1,440 hit

As for Lough, she says she only rents out one property — so being considered a commercial business doesn't make much sense.

After shopping around, she has agreed to take the financial hit and pay nearly $1,440 more to insure her rental property. She says she'll build the extra cost into her budget next year.

Lough says she wonders if it's time for municipal and provincial governments to step in as they look for affordable housing solutions.

"If someone was looking at maybe making their place a rental place and you look into something like this, it could stop you from being a landlord," said Lough.

"That's less housing available for people."