Australia’s strata insurance market is undergoing reform focusing on intermediary (strata agent) disclosure standards and insurance affordability for consumers with respect to ‘smaller’ strata plans (under $10M building sum insured value). Here we observe the market is highly concentrated with limited insurers and underwriting agencies available.
This market update relates to large strata plans which have significant insurable asset values (building sum insured value in excess of $100M) with multiple commercial and residential tenancies and may have heritage status.
In previous years we have observed the cost of strata insurance rising due to inflationary pressures, building repair costs, delay of building material supplies, increased reinsurance rates and claims costs due to weather related perils (e.g. flood, storm, bushfires and the like).
The forecast for the next six months as we head into 2025 should see stabilised rates for those strata plans which are well maintained, have a good claims history, have minimal defects, no hazardous building construction elements as well as adequate fire and security protection.
Insurers have appetite for strata plans that present a ‘good’ risk profile. Under strata legislation, buildings must be insured for their full replacement value. It is the duty of the Owners Corporation (OC) under the strata scheme to ensure that the insured replacement value is adequate to repair or rebuild assets using the same quality of materials and same design, along with all associated legal, architectural and contracting fees should an insured event or loss occur.
Underinsurance implications could arise and expose the OC and lot owners who do not have sufficient policy sums in place. We are observing an increase in insurers who require updated valuations or appraisals on some strata plans year on year alongside evidence of adequate fire protection measures such as satisfactory flow test results for sprinklers and hydrant systems.
We encourage OCs to ensure property risk surveys are undertaken by a qualified risk surveyor bi-annually at a minimum to inspect their strata plan assets and evaluate the nature, likelihood, impact, and mitigation of various insurance risks. Property surveys are a useful risk management tool to gain a comprehensive and holistic view of your insurance risk and exposure. Undertaking a risk survey demonstrates to insurers a good level of risk maturity and a proactive approach to risk mitigation. In turn, this may attract competition among insurers to provide prospective insureds with insurance quotations allowing them to achieve a competitive property premium and broader cover.
With regard to liability exposures for commercial strata property owners and tenants, insurers have little appetite for high-risk retail tenancies with high foot traffic otherwise known as ‘people risk’. Depending on the nature of occupancy, the type of tenancy can attract insurer premium loadings.
It is important that strata plans and property owners have sound risk management and induction procedures around engaging contractors. In particular, the requirement for all those onsite for works or maintenance to have their own contract works, public liability and workers’ compensation insurance in place prior to being engaged. From a public liability perspective, it is prudent that all personnel are licenced, qualified and authorised to undertake any works prior to being engaged on site.
Other emerging risks in the strata space arise from the use and installation of Electric Vehicle (EV) charging units. EV usage and charging stations may, in future, attract policy exclusions or conditions and premium loading however, there are currently no specific exclusions in existence for their usage under property policies. It is important to note the EV charging station itself and all associated components do not fall under “common property” under building insurance and as such, a lot owner must ensure any EV charging station is insured separately against loss, damage or theft.
To minimise the risks associated with EV usage, it is prudent that the OC of a strata scheme has appropriate risk management controls in place. Operators of EV charging units should follow strict safety protocols, for example, placing bollards around chargers to prevent accidental damage, installation of safety monitoring systems to prevent high-voltage fires, installation of clear signage where multiple chargers are in use that clearly differentiate conventional charging points and EV charging points. EV drivers and operators should also have appropriate knowledge and training on using charging facilities.
Your Bellrock Advisor is here to discuss your strata scheme’s insurance needs and risk management strategies.
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