Steps to take to make your scheme more competitive to insurers

How do schemes become more competitive

As you may be aware, insurers are becoming highly selective of which schemes they may choose to insure.

Each scheme now has to be more competitive and demonstrate that their actions and plans will minimise losses to the owners and in turn to the insurer.

Compliance reports such as Common Property Lifecycle Reports, 10 Year Plans, Maintenance Plans, and Servicing Plans will become one of the more important tools looked at by insurers, as well as assisting owners to prove that they are keeping their property safe for visitors and residents.

The key is being able to ‘demonstrate’ that compliance records are in place and prove that actions such as regular maintenance is carried out.

What to look for

Using the words ‘ensure that you have engaged the right contractor’ can be easily overlooked. A trusted advisor who is appropriately experienced, knowledgeable and intimately familiar with strata and community property is vital to ensure proper legislative compliance. Legislation in some States is specific on who can carry out the work. For example, in NSW only a ‘Qualified Valuer’ can carry out Insurance Valuations for Community Schemes.

An independent advisor should not be affiliated with companies that carry out physical remediation or similar work.

Building Insurance Valuations

Over 75% of the insurance valuations that I peer review are over‐valued.

Some inexperienced consultants attempt to ʹcoverʹ themselves by over valuing. They think that by putting a higher than market construction costs into their valuation they are somehow ʹprotectingʹ themselves (ie if they get caught they simply have to pay back the excess premium as opposed to paying significantly more if there was a proven shortfall in their assessment). Unfortunately, lot owners end up paying more in premium for no good reason.

Supply disruptions and labour shortages have increased construction costs, and prudent owners obtain insurance valuations more regularly in order to recalibrate to the current market construction costs, and avoid excessive premiums.

The cost of obtaining an updated valuation is cheaper than the potential unnecessary increase in premiums.

Safety Reports

As owners have unlimited liability, and to protect themselves, owners need to prove that reasonable steps have been taken to identify and mitigate harm from any potential hazards and attendant risks that they know of, OR OUGHT TO HAVE KNOWN. Insurers seek evidence that these potential risks have been addressed.

In my opinion, a properly prepared Safety Report with cost effective and practical recommendations would address both civil liability, and health and safety legislation, which minimises the risk of being sued in negligence or being prosecuted.

Many consultants attempting Safety Reports are not formally qualified to assess risk. Always engage a consultant that has Cert IV WHS qualifications.

Asbestos Reports

WHS legislation requires an Asbestos Register to be at any workplace (or likely to be a workplace) for property primarily constructed prior to 31 December 2003. Significant fines apply when these are not available in a workplace (including work from home arrangements), and some insurers are now insisting on these Asbestos Reports (including a Management Plan) before they even look at a property to insure.

Regardless of the WHS or OHS legislation, asbestos is a known carcinogen and can cause harm to any person. This risk lays with the civil liability obligations of owners to ensure that their property is safe for any person.

10 Year Plans

A properly prepared 10 year Plan will provide recommended contributions for each lot and for each year of the Plan. Our words are ‘it is a Saving Plan, not a Spending Plan; on a User Pays basis’ to ensure there is a pool of funds to be easily applied to maintain and repair the property (which provides a degree of comfort to an insurer that the property will be maintained, which in turn may reduce claims).

Professional, Independent Advice

Various Reports available in the market are NOT the same; and the quality varies widely. Many Reports are being offered by suppliers with limited experience, lacking detail, and with no proper understanding of the legislative requirements and the true task. Just because a Report is cheaper, it can be a significant false economy and can place the owners at financial risk and compliance risk.

Some contractors may state they have Professional Indemnity, but in reality their PI insurance only covers them for valuations, and not asbestos (which can be hard to obtain), nor safety reports.

Engaging the right contractor will save your time of having to explain someone’s Report or Plan to your clients.

The above compliance reports from a properly qualified and independent advisor will assist in making a scheme more competitive to an insurer, and more importantly, the scheme should be safer for any person, including family members of lot owners.