The Strata Insurance Industry – 2021 and Beyond

As the world continues to deal with the pandemic, 2021 and beyond seems daunting with health, economic and social issues continuing to impact our communities.

Obviously much depends on how the world recovers from the pandemic. But there are some positive signs for industries such as insurance. Even though the insurance industry has been battered by the situation there seems to be some light at the end of the tunnel. A recent report by Swiss Re is cautiously optimistic about the future, noting that Australia and other advanced markets have pulled through from the crisis better than expected, despite months of business upheaval.

Putting aside the major issues of COVID-19 fallout – what challenges and issues does the Australian strata community and the strata insurance industry face in 2021?

Affordability and Accessibility to Cover

Claims inflation combined with mounting costs from catastrophic events are all factors that are influencing pricing in the insurance sector more broadly.

These pressures have led to some insurers reviewing where they are prepared to offer capacity, leaving some owners corporations/bodies corporate with difficulties in placing insurance cover for buildings with defects, cladding or long term undesirable claims performance.

With insurers being more selective with where they commit capacity, it is more important than ever that owners corporations consider insurance placement with providers that they have confidence in to manage any ongoing cladding issues and problematic buildings with defect considerations to ensure continuity of cover and consistency in pricing.

NSW ESL Increase Hurts

An increase of more than 20% in the NSW Emergency Services Levy (ESL) announced in May 2020 couldn’t have come at a worse time.

Councils are being let off from paying their share but there’s no relief being offered to insureds, such as strata owners. A levy on insurance premiums makes up the bulk of the funding, but local councils also contribute. A NSW Local Government stimulus package has provided $32.76 million to “meet the increase in the Emergency Services Levy for all NSW councils”. However, there is no relief package for strata owners, households and businesses paying insurance.

Those struggling with the economic downturn of COVID-19 may now also have the added burden of paying the increased ESL.

Making ‘Trustworthy’ Buildings Again

Trust in apartment buildings was shaken by the Opal and Mascot towers events but the appointment of the NSW Building Commissioner David Chandler and his sweeping new powers is expected to shake up the building industry and provide greater confidence for prospective strata purchasers.

NSW’s construction watchdog now has the power to inspect building sites, prevent the issuing of occupation certificates, call for documents, and – an important feature – rectification of serious defects and recovery of associated costs.

Those struggling with the economic downturn of COVID-19 may now also have the added burden of paying the increased ESL.

The Design and Building Practitioner Act, which comes into effect next July, will further strengthen the powers of the Commissioner to monitor building construction. Practitioners will have to submit a compliance declaration to declare that designs comply with the Building Code of Australia and that the building is built to code. It is anticipated that this will lead to greater transparency, accountability and compliance, right through the supply chain.

Good news for the strata industry and the SCA, which has been in close discussion with the Commissioner for some time on these issues.

Cladding Good News

The NSW Government is following the Victorian Government’s lead of funding rectification work. The Victorian Government announced in July last year a $600 million package to directly cover owners’ costs to remove cladding from high-risk buildings.

This followed a disastrous fire in February last year which raced up dangerous cladding on the side of the Spencer Street tower of the 41-storey Neo200 apartment building, which had the same sort of cladding used on London’s ill-fated Grenfell Tower.

More good news with the NSW Government recently announcing that apartment owners forced to replace flammable cladding on high-risk buildings across NSW will be able to access interest-free loans. This is part of a $1 billion government program over the next three years aimed at helping to resolve the crisis. The program, includes $139 million to establish and offer technical support to owners for the remediation of at-risk buildings.

The government will also be covering the interest bill – capped at $930 million – for loans taken out over the next three years by building owners to remove and replace combustible cladding. The interest-free loans will apply to about 225 buildings identified as high risk. The government has estimated the average cost to remove cladding from those at $4 million each.

2021 – A Time to Turn Challenges into Opportunities

Crises make us more resilient. The pandemic has seen people leaning on each other and giving a helping hand. The strata community is no exception, with strata communities working together to weather the storm, helped by strata managers, insurance brokers and insurers. Importantly, the network of the SCA has seen the community able to work closely together to survive this present crisis.

While we all continue to struggle with the impact of the pandemic and the uncertain times, history shows that the world ultimately recovers from such disasters. History also shows that people, communities and businesses often turn such challenges into opportunities. No doubt the strata community will find such opportunities.