Mastering strata insurance

7 essential tips to navigate challenging times

The world of strata insurance is experiencing dramatic transformation.

Insurers are becoming increasingly risk-averse in the face of natural disasters, resulting in changes to policy, reduced competition and sharp increases in premiums. The surge in demand for building materials and construction services is driving up maintenance costs. The rising cost of living sees strata owners desperately seeking avenues to reduce expenses.

All these elements – compounded by current concerns around transparency and commissions – are converging to create a perfect storm that strata managers must effectively navigate. However it also means that the role of an insurance broker is more important than ever when it comes to delivering efficient value to clients.

Strata managers need to focus on what they can do to deliver value…starting with insurance.

To accurately underwrite a strata insurance policy, insurers require comprehensive and accurate information when placing new business or renewing existing policies. That’s why, to help strata managers efficiently prepare insurance applications, we’ve compiled a list of what information is required, and – more importantly – why it’s required.

1 – Provide correct information

Why? Here are two very good reasons:

1 Insurers need to confirm that the strata building falls within their underwriting guidelines.

2 The Owners Corporation (OC) have a duty to disclose all information that could affect an insurer’s decision on whether or not to insure a property. If incorrect, it could have an impact on the strata insurance coverage in a claim.

2 – Provide all information

Ensure all details regarding construction, age, number of units, communal property facilities such as swimming pools, etc, have been provided. Here’s how:

Provide all details regarding materials used in the construction of walls, roof and floors

As a result of new construction materials becoming available, insurers are becoming increasingly wary of the property risks they are choosing to insure.

While construction materials for floors and roofs have generally stayed the same (timber and concrete for floors; timber, steel and tiles for roofs), the materials used in the construction of external walls has become an area of immense concern. If a property’s external walls are constructed of mixed materials (for example, brick, blue board, besser block, rendered cladding, etc), ensure you advise all materials used, and their respective percentage of cover…because providing in-depth details regarding construction materials can result in more efficient placement of your insurance policy.

Provide the age of the building

Some insurers will decline to provide a quotation simply due to the age of the building.

Number of units

This is required to accurately reflect the building sum insured, and provides insurers with information regarding the scale of the risk exposure.

Swimming pools, spas and gyms

Swimming pools, spas and gyms can increase your risk profile due to an increased potential for bodily injury liability claims.

3 – Elaborate on the use of cladding panels

Following disasters such as the Grenfell Tower fire in London and the Lacrosse fire in Melbourne, the use of combustible cladding in residential construction has come under intense scrutiny. That’s why – as per the Ministerial Order released in March 2018 – combustible cladding has been banned for use in residential and commercial construction in Victoria. If illegal cladding has been used, it presents a greater fire risk and increases the possibility of a total loss event, and it can have a significant impact on your ability to place or renew strata insurance.

Aluminium composite panels and expanded polystyrene cladding

If your strata property contains Aluminium Composite Panels (ACP), or Expanded Polystyrene (EPS) panels, insurers may refuse to provide a quotation, or request further information regarding the manufacturer and the type of panels in use to help determine whether the panels present a heightened fire risk.

4 – Advise of the potential presence of asbestos

Was your strata building constructed prior to 1980? If so, there is every chance that asbestos materials may have been used. Introduced in the mid 1950’s as a cost-effective material for heat and electrical insulation, asbestos cement was commonly used in residential construction. Fast-forward to today, and it is now evident that that cracked or deteriorated asbestos panels can release microscopic fibres into the air. If inhaled, these fibres can cause life-threatening respiratory diseases such as asbestosis, mesothelioma, pleurisy and lung cancers.

And that’s why, if asbestos is a known risk at a property, insurers may:

• Decline to provide quotations as asbestos is often outside their underwriting guidelines
• Impose policy conditions and higher excesses in order to cover the increased risk exposure

5 – Include a defects report

If you are aware of defects at the property (aka ‘known defects’), make sure a defects report is provided to your insurer or broker. Depending on the severity of the defects, insurers may:

• Decide not to insure the property
• Increase the insurance premium or impose higher insurance excesses
• Provide the OC with a fixed period of time to rectify a defect, and agree to insure the building – with policy restrictions – until works are completed

6 – Disclose the business activities of occupants

If the strata property is 100% commercially occupied, or has mixed tenancies (that is, residential with a commercial component), all business activities need to be provided. Why? Because certain business activities can result in an increased risk profile and higher premiums.

For example, if a property has a small restaurant or cafe on the ground floor, insurers will almost always require additional information, such as:

• Is there a deep fryer at the premises? If so, what size (in litres) is the fryer?
• How often are the air filters and flues / ducts cleaned?
• Are professionals employed to clean the air filters and flues / ducts?

At the end of the day, to arrange insurance for commercial strata or mixed-tenancy strata propertires, insurers need to be informed of commercial business activity to ensure the risk is appropriately evaluated.

7 – Supply a complete claims history

A full claims history must be provided when requesting an insurance quote. Insurers need to be fully aware of claims activity for a strata property to accurately calculate the premium for the risk, correct excess(es) and policy conditions.

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A good insurance broker can empower strata managers when it comes to delivering cost efficiencies to their clients by providing technical assistance on special risks, sourcing suitable insurance, negotiating the best available price, and acting as an advocate in any claim to achieve the best possible outcome.

Leaving managers to focus on what they do best – managing maintenance, communicating with committees and residents, optimising the strata living experience by providing professional support…and last but not least – planning with certainty and growing business effectively!