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Friday February 27 2026

SELF-INSURANCE FUNDS: WHY A PROVISION FOR BAD DEBTS IS ESSENTIAL

Since the recent reforms to Quebec’s condominium law in 2019, each condominium syndicate must maintain a self-insurance fund. The purpose of this fund is simple: to enable the syndicate to quickly pay certain expenses related to a claim, such as the insurance deductible.

In theory, the mechanism is simple. In practice, however, managing this fund involves an accounting risk that is often underestimated: uncollectible accounts receivable.

This is precisely why provisions for bad debts are an essential tool for sound management.

A COMMON PRACTICE: RE-INVOICING THE LOSS TO THE PARTY AT FAULT

When a loss occurs (for example, water damage caused by a co-owner), the syndicate pays certain expenses from the self-insurance fund and then re-invoices the costs to the co-owner deemed responsible.

From an accounting perspective, the transaction often looks like this:

Expense in the self-insurance fund
Creation of an account receivable from the co-owner at fault

Result: the expense is offset by rebilled income.

On paper, the fund therefore appears to be preserved, since the expense is neutralized by the receivable. No special contribution will then be required to replenish the self-insurance fund.

But appearances can be deceiving.

THE PROBLEM: RECEIVABLES ARE NOT ALWAYS COLLECTED

In many syndicates, these accounts receivable may:

take several years to collect;
be subject to legal disputes;
or simply never be recovered.

Meanwhile, the money from the self-insurance fund has not actually been returned to the fund.

The result is often as follows:

the fund continues to pay other claims;
the actual balance of the fund decreases;
it may even become negative.

In other words, even if the financial statements show significant accounts receivable, the fund itself is not replenished.

A MINIMUM OBLIGATION TO RECONTRIBUTE TO THE SELF-INSURANCE FUND… BUT SOMETIMES INSUFFICIENT

The law provides that the self-insurance fund may cease to be contributed to once it reaches the highest insurance deductible, with the exception of deductibles related to earthquakes and floods. In addition, the annual contribution obligation is limited to half a deductible.

This rule establishes a minimum threshold, but it does not solve the problem of bad debts.

If several claims have been re-invoiced without being recovered, the normal annual contribution may be insufficient to compensate for the amounts actually withdrawn from the fund.

THE RISK: AN UNFAIR SPECIAL ASSESSMENT

The real problem often arises several years later.

When the syndicate finally realizes that certain accounts receivable will never be recovered, they must be written off.

At that point, the financial impact suddenly becomes apparent:

the self-insurance fund drops dramatically;
the syndicate must then quickly replenish it;
a significant special assessment may be necessary.

However, some co-owners called upon to pay this assessment were not even owners at the time of the claims that created these receivables.

They therefore bear losses related to past events in which they never participated.

THE SOLUTION: A PROVISION FOR BAD DEBTS

This is where the provision for bad debts plays an essential role.

When a syndicate creates an account receivable for a re-invoiced claim, it should also assess:

the actual probability of recovery;
possible delays;
the risks of litigation.

If part of the amount is uncertain, an accounting provision should be recorded.

At SolutionCondo, we have established a rule that any accounts receivable related to a claim that have been unpaid for more than 12 months must be provisioned.

This practice makes it possible to:

more accurately reflect the actual financial situation of the self-insurance fund;
identify the fund’s financing needs earlier;
reduce the risk of major special assessments in the future.

A QUESTION OF FAIRNESS AMONG CO-OWNERS

Beyond accounting techniques, the issue is fundamentally one of fairness.

Prudent management of the self-insurance fund allows:

the costs of claims to be borne by the co-owners present at the time they occur;
financial losses from being transferred to future co-owners;
a more transparent financial picture for potential buyers the financial statements or certification of the syndicate are provided to a prospective buyer.