With hundreds of property insurance products available in the Australian market, it pays to understand which ones work best for your type of asset. Strata insurance is for strata-managed units compared to home insurance for conventional, stand alone houses.
Even to the most careful, accidents do happen – a storm could damage your outdoor areas, a visitor could slip on your stairway and so on. If you’re a strata owner and the lawn is damaged, the roof starts to leak or perhaps a visitor gets injured in the strata complex, who’s in charge of the damages? This article will give you a clear understanding of these issues and more while debunking all the misconceptions about what is and isn’t covered by your strata insurance.
So, first things first:
What is Strata Insurance?
It is mandatory insurance taken out by an owners corporation to cover the building, common assets, and common areas in a strata scheme. Strata insurance applies to multiple units in buildings on a shared parcel of land.
This insurance is meant for buildings such as townhouses and apartments with shared areas. Strata insurance covers lot owners against things such as weather events, break-ins, and accidents. Strata members, in the form of an owners corporation or body corporate, share the premiums among themselves.
Both commercial and residential strata complexes hold insurance in line with the laws of respective states.
Why do you need Strata Insurance?
Unlike stand alone houses, strata buildings share amenities and for this and other reasons, things can sometimes get complicated. If shared assets and areas get damaged, you want to ensure that insurance has it covered lest blame is shifted.
However, some covers will only cater for buildings within the complex and common areas including swimming pools and driveways. You may need additional premiums for extra areas and items such as lawns and washing machines.
Strata insurance is a legal duty of the owners corporation. If you own any of the following properties, chances are your owners corporation or body corporate is required to take out strata insurance:
What does Strata Insurance cover?
Most covers apply to losses and damages in the common area and shared property such as the building. Unexpected occurrences such as theft of common area items, property damage under the owners corporation custody, and any recovery costs are covered by the strata insurance. It is also common for most Australian strata insurance providers to cover injury of people in the common areas.
What is not covered?
Insurance providers may not offer strata building insurance meant for short-term occupancy, house-sharing or holiday rental. Examples include houses listed on Airbnb and Stayz. This may not be the case for some providers, but it is a common occurrence across Australia.
Also, events categorised as acts of God may not be covered. If, for example, your car is hit by lightning in the parking lot, your insurance provider might term it an act of God which is not covered. While some might find it interesting to spend the day suing God for their losses, you might want to thoroughly review your policy to understand exactly what is covered and what isn’t. Otherwise, you could waste a lot of time and money pursuing cases that might end up in a dead end.
Another common claim that tends to denied relates to building defects. If a building defect such as a leaking roof is proven to have been caused by poor workmanship, the insurer is likely to decline your claim. In this case, they might argue that compensating such will amount to paying for something that was already broken in the first place. This is why buying quality units and maintaining them is important not just for your clients, but if the insurance isn’t going to cover the resulting damages.
Items covered by contents insurance are also not covered by strata insurance. This means that assets such as furniture that were not there before moving in will not be covered.
How much does strata insurance cost?
Insurance premiums will vary depending on several factors including your preferred insurer, location and other matters. Here’s a breakdown of what is factored in when quoting your insurance premiums:
- Location – where are you located in the country? Do you live closer to the city centre? Is your location cyclone-prone or flood risk? Areas with higher risks will generally attract higher premiums.
- Condition and age of the structure – a key determinant of your insurance costs. Older buildings with more defects will attract higher premiums.
- Types of properties covered -luxury facilities such as gyms and swimming pools generally raise insurance premiums.
- Purpose of the property – if units are used for holiday homes and not permanent residency, the premiums are likely to go up.
Your insurance costs will also depend on the amount of excess you pay on top of each claim. Covers that attract more excess payments will generally amount to low premiums and vice versa. But be warned that this might sound attractive until you hit your first excess claim. However, if you don’t anticipate excesses, it might be a great option for you.
The best way to guarantee value for your insurance cover is by sitting down with your strata manager and working out the likely risks associated with the building. Most strata managers have vast experience in strata living, and they should be able to balance between risk and fair premium payments.
What factors contribute to the premium?
Stand-alone houses will generally cost more than what each unit owner in a strata community pays in the same area. Depending on an owner’s needs and the underwriting appetite, a strata insurer will customise products with different premiums. Common factors that contribute to the payable premiums include:
- Insurance taxes (GST and stamp duty)
- Mandatory state laws
- Building condition and age
- A building’s replacement cost
- The general risk profile of an area based on things like floods, cyclones etc.
- Common assets and areas such as car parks, make up for additional premiums including car parks, lifts, and pools
- A scheme’s claims history
- Amount of excess liability accepted by the owners corporation
- Use of the building such for commercial activities including holiday homes
- Agency fees and commissions
Who manages Strata Insurance?
The strata manager or committee is most likely responsible for insurance matters on behalf of all lot owners.
In self managed strata schemes, other owners may sometimes nominate a unit owner to be in charge of the building complex’s insurance.
A strata insurance broker can also deal directly with the committee to arrange insurance and assist in process claims.
How is strata insurance purchased?
Most larger insurance firms in Australia offer strata insurance services to individuals and corporations. There are a handful of insurance firms who are specialists and only deal with strata insurance. Owners corporations and strata managers will typically purchase insurance covers through brokers and specialists to benefit from their wealth of knowledge and experience in the subject and get educated on various insurance policies without bias.
Who Needs This Insurance?
All lot owners of townhouses, apartments, duplex, and flats that belong to an owners corporation are required to have strata insurance. The insurance cushions strata lot owners against unplanned damages and events. The joint insurance is also cost-effective for the strata community.
What if I don’t have a strata manager or property manager?
Lot owners of units in complexes will most likely have an owners corporation managing their unit. If you’re not quite sure of this, check with the property agent you bought your unit through or other lot owners in your strata complex.
For units that are not managed, including one or two units sharing only a driveway, consider talking to a strata management expert on whether it’s viable to employ a strata manager to look after your property. Each state and territory around Australia has different strata legislation and the laws and requirements are complicated.
What type of events are covered by Strata Insurance?
Strata insurances are generally broad. Their policy documents may not necessarily highlight every covered detail (like your vehicle insurance), but you will give a breakdown of what is not insured. Here are some generally accepted strata claims:
- Water damage
- Impact damage
- Accident damage
- Fire damage
- Storm damage
- Malicious damage
Uncommon but covered claims could include:
- Cleaning after cadaver removal
- Rare events such as floods
- Fixtures after forced entry due to an emergency
Do you need private insurance as well?
Since strata insurance doesn’t cover everything, you can consider having private insurance for the items and events not covered. This will ensure that your entire investment remains secure if the unlikely happens. This would include contents insurance for resident lot owners and landlord insurance for investment lot owners.
Who can claim against strata insurance?
Let’s say one day you get a call from your tenant claiming that your unit is oozing water from the ceiling – what happens then?
The first thing you want to do is notify your strata manager. Managers understand strata policies, so they’ll be able to offer sound advice on the next steps to take. They’ll tell you whether you can file a claim or not and if you can, how to go about it. In some instances, they’ll advise you to pay for the damages from your pocket to keep the premiums low.
The insurance excess expense is normally borne by the owners corporation unless otherwise indicated by the strata by-laws. In some state’s legislation, the owners corporation can shift the responsibility of a strata home insurance excess to a unit owner.
This is why strata committees can direct damages be paid directly by the owners corporation instead of pursuing the same from the insurance provider. However, a committee can’t prevent a member from claiming damages.
If a member is denied a claim for damages by the committee or the owners corporation, they can directly pursue the same with the insurance company.
What do you need to know about strata insurance as a strata committee member?
Committee members have a lot to deal with, and sometimes the information sent their way can be overwhelming. We have singled out some vital details to note as a property owner and committee member to help you more easily digest the strata insurance topic:
- Take charge. Scavenge for best providers and rates within your locality. Single out insurers that offer strata title insurance for your type of property. Make sure that you match your property and potential claims with the right policy. Compare the final premium with similar lots in your area to ensure that you obtain value for your cover.
- Obtain sufficient information. Look out for any additional charges and commissions and who they are paid to. Will the charges be paid to building managers, strata managers, etc.? Understand why you’re required to pay the commission and the value they add to your insurance. Check to ensure that you’re settling for a fair amount of commission.
- Do background checks. As a lot owner, you want to understand the risks your property faces and the correct insured value. Talk to a property expert to understand the cost of replacing the building. Do other checks, including engaging a structural engineer to ascertain if the building was built according to, for example, the cyclone structural codes. Find out whether your structure is in a flood or storm area, then submit the findings to your insurer.
- Engage other key players. Give room for realistic insurance excesses for your property. Ascertain with your insurer or broker the impact of changes in excess payments on your upfront premium and whether they could help reduce it. Convene a meeting with stakeholders to find out how much excess payment owners are liable for beyond the insured amount. Establish a balance with your broker or insurer between a suitable premium and the excess payments. Establish whether your scheme can accommodate for any excess insurance payments in the sinking fund.
- Take responsibility when required. Adapt the culture of doing routine maintenance for your unit rather than regularly filing small claims. You also want to evaluate the claims history of your building complex. Can the number of claims in a year be reduced? Insurers use the claims history to set premium values for owners of properties in a strata community.
Do you have the right strata insurance cover?
You can see how crucial insurance is for owners corporations. It saves the lot owners money and takes care of the outsiders visiting the complex. Committees must keep an eye on the insurance cover to make sure it is correct. You want a cover that adequately protects the building’s assets as well as the common assets. As a lot owner, it is vital that you single out the things that your insurer has not covered and consider whether or not they are worth taking out additional insurance upon consulting with your strata manager or insurance broker.
On insurance comparison, the committee should do their homework to determine whether there are any extra pros or cons concerning the situation. For instance, some insurance providers will grant up to 25% extra compensation in the event of a total loss. Such “small” policy clauses can come in handy.
If you still have any questions regarding strata insurance, do share them right here.
Until then, happy strata living!