The average strata insurance premium jumped 12 percent between 2016 and 2020, according to Deakin’s analysis, jumping from $3,305 to $5,017.
Underwriter market
We’ve observed changes in risk appetite over the last 12 months as underwriting requirements have tightened. As a result, the following circumstances may arise:
- Strata properties classified as “high risk” are subject to special policy restrictions and insurance cover exclusions (information on what defines “high risk” can be found below).
- Certain policy sections are subject to construction excesses and cover limitations.
- Insurers are offering short-term renewal periods in cases where problems have been present for a long time.
- Expandable Polystyrene Sheets and Aluminum Composite Cladding concerns have a lower coverage capacity.
Cladding
- Expandable Polystyrene Sheets and Aluminum Composite Cladding are now more than ever on the minds of insurers.
- In the case of a fire, cladding excesses ranging from $5,000 to $100,000, or 10% of the Building Sum Insured, are being applied to many strata houses.
- To properly analyze the risk, insurers demand a Building Materials Report, which includes the names of the products used in the building’s construction, their location, and proportion. This is true for both renovations and new construction.
- Updates on the cladding removal project should be sent to your broker so that the insurer is aware of any changes in the building’s risk.
Defects
- As part of your Duty of Disclosure, all defects must be reported to your insurance broker and insurer.
- If a problem is not corrected, insurers must follow their underwriting guidelines, which may result in higher premiums, higher deductibles (excesses), specific terms and conditions, and short-term policies that leave a property without coverage.
Strata Insurance premiums
- For properties with no pending claims or faults, Strata Insurance premiums are currently increasing by 10-20 percent or more on average.
- Premium rate increases will be much higher for strata properties with known concerns. Why? Strata property insurance must be priced to reflect the risk and characteristics of the building.
- A growing proportion of strata properties are classified as’very high risk,’ which means they have hefty repair expenditures. This can be attributed to a variety of factors including location, age, design, and construction methods.
- Claims history, maintenance issues, and how a facility is used can all influence the risk profile of the property and, as a result, the premium rates charged. The building may, for example, comprise flats utilized for vacation rental and/or ‘high-risk’ business activity.
Claims
- Due to the increasing amount of severe weather events and natural disasters that we are experiencing in Australia, Strata Insurance claims are becoming more common. As a result of the increase in claims, insurer earnings are being strained, putting increasing pressure on Strata Insurance prices across the board, particularly in those properties that have seen claims.
- Insurers are hesitant to issue quotes for houses that have outstanding insurance claims and/or rectification work that has yet to be completed.
What does strata insurance typically cover?
Strata insurance covers the building, common property, and contents as defined in the property’s title. Common areas, garden equipment, wiring, lifts, swimming pools, car parks, walls, windows, gardens, ceilings, and floors are all examples of this. These policies are frequently required to cover shared property that is not covered by a standard homeowner’s policy.
Some of the fixed parts of your unit, such as ducted air conditioning, may be protected under strata insurance, but it will not cover everything. If you own or lease a strata property, you should carefully study the policy to understand what is and is not covered in your unit.
Do strata fees cover building insurance?
All OwnersCorporations of a Strata Scheme must insure the building and keep it protected under a contract of insurance against fire, lightning, explosion, and any other occurrence stated in the policy, according to the Strata Act in NSW. This type of insurance also covers common property, which in many cases would include things like gardens, driveways, parking lots, and pools.
For the purposes of a strata scheme, a ‘building’ is defined as the structure depicted on the Strata Plan. The insurance also covers the things listed in the Strata Schemes Management Act 2015 as requiring coverage.
The roof and its roofcavity, which are represented in a thick black line, are considered common property (structure) and are protected as part of the ‘Building Sum Insured.’ The building insurance would also cover anything labeled ‘CP’ (Common Property).
- Infrastructure such as wire and service pipes located in common area spaces are often considered common property. Damage caused by leaking or burst pipes within common walls – infrastructure such as wiring and service pipes found in common area spaces are typically considered common property.
- Glass shattering due to unintentional collision – rocks thrown up, doors slammed shut, etc.
- Graffiti and theft are unfortunately prevalent causes of malicious damage to shared property.
- Fire, while not as common as other causes, has the ability to cause significant property damage.
It’s crucial to know as a strata owner that some insurance carriers may expand coverage to include “Lot Owners Fixtures and Additions.” This means that if an insurable incident damages those permanent fixtures within a Lot, they will be covered.
These objects are normally excluded from coverage in your contents/landlords insurance if they are already protected under the Owners Corporation’sinsurance policy, but owners should verify with theircontents insurer to be sure.
CHU Insurance (2019) includes the diagram below in their Contents Fact Sheet to show what is and is not covered by their strata insurance policy:
As a result, double-check that your Owners Corporation’s coverage covers LotOwners Fixtures and Additions.
Despite the fact that an item would ordinarily be protected by the Owners Corporation’sinsurance policy, owners should keep the following in mind:-
- There is no bylaw in the complex that assigns accountability for the item to the unit owner.
- The installation has received the necessary approvals, such as from the City Council and/or the Owners Corporation.
An Owners Corporation is required by the Strata Schemes Management Regulation 2016 to have Public Liability Coverage of at least $20 million.
This will protect the Owners Corporation in the event of an incident on common property that results in injury to a person or property.
- Owner Investors Those who rent out their lot will be covered for any lost rent (up to the policy limit) if their lot is damaged by an insurable event and the insurer determines it is unusable. The insurance pays the owner the amount of rent that the tenant would typically pay, and the renter will use that money to support alternate housing rather than paying the owner.
- Owner-occupiers These are people who own their own homes. If an insurable occurrence renders a Lot unusable, the owner-occupier will be paid market rent to rent out their property and utilize the proceeds to pay for substitute lodging while the property is being repaired.
Until the lot is no longer uninhabitable, the amount of lost rent will be paid to the owner in accordance with the policy’s amount. The standard amount of coverage is 15% of the building’s insured value. For example, if the building is insured for $3,000,000, there will be $450,000 in loss of rent coverage per claim.
It’s vital to remember that the tenant’s fees or losses incurred as a result of having to vacate the premises are usually not compensated.
This protects anyone who volunteers to labor on behalf of the Owners Corporation and is wounded while doing so. If owners want to do unpaid work, they should contact the strata manager so that we can put a note on the policy with the insurer.
This sort of insurance covers the Owners Corporation for any losses incurred as a result of a wrongful conduct committed by a member of the Strata Committee while performing their duties.
Hopefully, this post has answered some of your Strata Insurance-related questions.
Note that this is only general guidance; if you have any specific questions, we will gladly seek clarification from your strata building insurer.
Why is strata insurance going up in BC?
A number of reasons have contributed to a significant spike in the cost of insurance in regions of British Columbia, causing some strata corporations to scramble to find and afford coverage. Because there were fewer players left, they were confronted with a larger number of structures to cover, which concentrated their risk.
Can you negotiate strata fees?
The only other certainty of apartment living, aside from death and taxes, is the third member of the awful trinity: levies. While you may be discouraged by the magnitude of your quarterly payments for a unit that sounded too good to be true at the time (you now realize the pool, gym, and sauna were too good to be free), there are methods to make things better.
You must first comprehend levies before taking action to reduce them. They’re your part of the building’s operating costs.
Does strata insurance cover internal walls?
Common property such as common areas, car parks, stairwells, lifts, gardens, and common floors, walls, and ceilings are all covered by strata insurance.
How is strata insurance calculated?
Strata Levies are normally paid quarterly, however the frequency might vary based on the property’s needs, which is decided at the Annual General Meeting each year.
Strata Levies do not have a set norm; they vary from scheme to scheme depending on the number of communal facilities and other criteria. Strata fees in New South Wales range from 0.3 percent to 1.2 percent of the property’s value (0.8 percent to 1.2 percent with facilities, 0.3 percent to 0.7 percent without facilities).
These Levies are calculated and voted on at the Owners Corporation Annual General Meeting. Existing owners will receive the final sum with the minutes, whilst potential buyers will typically obtain this information through the work of their lawyer or conveyancer.
What is the difference between strata insurance and home insurance?
Building insurance usually covers a single household property as well as permanent constructions such as a garage and a granny apartment.
Strata titled properties, on the other hand, usually have a body corporate that is required by law to carry residential strata insurance. This usually refers to the building(s) and any common or shared property that the building strata title manages.
Strata insurance typically covers common areas including gardens, elevators, walls, windows, pools, ceilings, and floors, as well as some liability coverage for injuries to persons on common property. Because strata rules and insurance change from state to state, you should double-check what is covered under your strata coverage.
Contents insurance versus strata insurance
Items that are included in the contents cover for non-strata titled homes are also included in the contents cover for strata titled homes. Personal belongings such as clothing and furnishings are often covered by contents insurance.
However, there are several aspects of your residential contents insurance policy that are not covered by strata insurance and that you should consider.
Any changes you make to your own fitted fixtures or fittings, such as replacing the kitchen, bathroom, or built-in wardrobes, may not be covered by your strata insurance. Check with your strata management to see what you’re insured for to make sure you’re in the know. If there are any gaps in coverage, talk to your home insurance about adding these upgrades with your contents coverage.
Tell your insurer about any changes that raise the value of your house, such as expansions or loft conversions, if you have a non-strata titled home. Because these factors may increase the value of your home and the expense of rebuilding it, you may need to increase your building insurance to be covered.
Because strata rules and strata insurance vary by state, and insurance coverage varies by provider, you should double-check what is covered under your policy.
Are strata fees worth it?
When clients tell me about an investment property they’ve recently purchased, they frequently extol its beauty and enumerate the building’s wonderful features. While it brings a grin to their faces, it frequently gives me a troubled expression. This is because they frequently regard these features as a benefit and a strong selling point, but I regard them as a liability and a compelling reason not to purchase. So, how do you know what to look for when it comes to strata fees?
Strata fees, like all other property charges, vary depending on the building, location, age, and price of the property. I usually buy 30-50 year old units in Sydney’s inner city for $700-$950k, with quarterly strata payments ranging from $650-$950. This is about 0.5 percent of the property’s total worth.
Lifts, gyms, pools, saunas, and 24-hour concierge are common in new buildings, and they appear quite enticing in glossy brochures since they’re what most of us look for when we think about vacations and leisure time. However, all of these amenities are highly expensive in a building and would very probably cost you in terms of strata fees.
While I believe that a lot of renters will be drawn to buildings with these types of amenities, I doubt that they will pay much more rent for them, if at all. Also, if they desire the most up-to-date technology, as new buildings are constructed in the region, they are likely to leave the ones that are a few years old and move into the most up-to-date.
I believe the exception to the rule is if you are purchasing a home to live in and the amenities are something you truly desire and are willing to pay for. As a result, rather than being solely based on financial considerations, this becomes a somewhat emotional decision. Another exception would be if you specialize in holiday rentals or serviced apartments, as these types of investments may require them.
You can’t merely look at the levy amount while deciding whether or not to invest in a property. You should investigate the reasons for the levies further, as high levies could be a good investment.
Two of my unit complexes had comparable quarterly levies a few years ago, but they needed to generate $50k for some repair work. Because it was easier to cash flow for most unit holders, the building in Coogee chose to increase the quarterly levy by $500 per quarter and raise the money over two and a half years. The block in Tamarama, on the other hand, chose to impose a single special levy and ask all owners to pay $5k in one go.
Many buyers would be turned off by the Coogee unit if I were to sell it throughout the process since the strata levies would be $1,250 per quarter instead of $750. In actuality, both blocks were excellent investments; they simply chose to raise the additional funds in different ways, with the Coogee block lowering the levies in a few years. Many younger buyers may not have the $5k flat sum required for the Tamarama block, hence the Coogee block may have been a better investment.
Low strata costs can be an indication of a disaster waiting to happen, while high strata fees can be a sign of a successful investment.
When evaluating potential investment properties, I always search for an active stratum. Many little and minor maintenance concerns can evolve into significant and expensive ones if left handled, therefore I always look for an active strata. Consider concrete cancer: if treated promptly, it can cost only a few thousand dollars, but if left untreated, it can result in $1 million in bills and fallen roofs. Imagine purchasing a unit and then receiving a special charge of $100,000 per unit a few months later!
If the stratum is actively spending money on a building, it’s usually to avoid problems from becoming more expensive in the future, saving you money in the long run, or to beautify the property, which adds value and gives you capital growth. There is, however, a narrow line to be drawn between providing value and overcapitalizing.
Invest in a strata report EVERY TIME you consider buying an investment unit, is my recommendation to anyone buying any form of strata property. This will cost roughly $200-250 and will summarize what has occurred in the strata records over the last 5-10 years, as well as future plans. You can see where the money is being spent by glancing at the report. You should also chat with the strata manager to obtain a sense of the objectives of the other owners.
To double-check the building, I would seek a building inspection, which would cost you roughly $300-$500. An inspection will disclose any issues that the strata has not yet discovered or been informed of.
I’ve seen one situation where the strata withheld a $75k special levy discussion from the strata records because one of the owners wanted to sell before the tax was imposed and knew it would deter purchasers. After ordering a strata report, the naive buyer received a shocking surprise a few months later. Even if you order the reports, there’s no guarantee it won’t happen to you it’s all part of the risk of living in a strata building.