QLD: Strata Insurance & Cyclone Cover in North Queensland

This article discussing the unfair cost of insurance in North Queensland has been provided by Tyrone Shandiman, Strata Insurance Solutions. This article has been updated in May 2021 in light of the Government backed $10 billion reinsurance pool to assist Northern Australia policy holders.

Table of Contents:

• QUESTION: In relation to strata properties with holiday letting in far North Queensland, insurers are declining to quote on policies for any property with over 50% holiday let.
• QUESTION: Our committee has gone to the BCCM to organise Alternative insurance cover for our North Queensland property, but were told they had to have insurance in place.
• ARTICLE: Government Backed $10Billion Reinsurance Pool to Assist Northern Australia Policy Holders
• ARTICLE: Self-Insuring Cyclone Cover – North Queensland

Question: In relation to strata properties with holiday letting in far North Queensland, insurers are declining to quote on policies for any property with over 50% holiday let.

In relation to strata properties with holiday letting in far North Queensland, insurers are declining to quote on policies for any property with over 50% holiday let. Others such as suncorp, will only quote on properties of up to 40% holiday let. What can be done for these who are over these percentages to obtain a quote for insurance?

Answer: It comes down to going to the entire market, finding all your available options.

I do just have to say that the situation in North Queensland and Northern Australia is very, very dire. There are many buildings that are struggling to find insurance. The main issue is ‘Can the body corporate tell owners that they can or can’t use holiday letting within their lot?‘. Obviously, that’s a very hot topic at the moment. I don’t believe the case law is in favour of that.

It comes down to going to the entire market, finding all your available options. If there’s a requirement for certain percentages, it might be worthwhile talking to some of the owners as a committee and saying, ‘Hey, we need to bring this number down. Instead of letting these lots out, can we have some owners that elect to not holiday let their properties?’, and failing that, I guess it’s looking at what are the other options available with other insurers.

I’m hoping that in the coming years and leading up the federal elections, there might be a change of stance from the government on how they handle Northern Australia. My personal preference would be for a government backed reinsurance pool Corporation, to provide catastrophe insurance to insurers for things like Cyclone and terrorism and other perils that they’re not insuring. But time will tell as to how the government they’ve had quite a while Time will tell as to what they do or if they do anything about it.

Tyrone Shandiman
Strata Insurance Solutions
E: [email protected]
P: 07 3899 5129

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the June 2021 edition of The QLD Strata Magazine.

Question: Our committee has gone to the BCCM to organise Alternative insurance cover for our North Queensland property, but were told they had to have insurance in place.

Our committee has gone to the BCCM to organise an Alternative cover for our 46 units plus restaurant, but were told they had to have an insurance in place.

We are now paying $355,000 for no cover for cyclones, storms or flood which in North QLD is a must. We are also paying a separate policy for public liability.

A full coverage was over $600,000 but this was dismissed by the Secretary

Where to go from here?

Answer: It is recommended where the committee are unable to meet their requirements to insure in accordance with the BCCM Act, that owners are involved in any decision making about an insurance policy.

Can I recommend the owner is referred to the information in the article below.

It is recommended where the committee are unable to meet their requirements to insure in accordance with the BCCM Act, that owners are involved in any decision making about an insurance policy. The secretary may be exposing themselves to legal liabilities if on their own volition, they decide to dismiss a proposal of insurance that complies with the BCCM Act where there are no other compliant proposals up for consideration.

If the owner does not believe the committee or a committee member are acting reasonably with regard to the proposals of insurance, they can refer an application for the Commission to deal with a dispute in relation to the arrangement of insurance.

Tyrone Shandiman
Strata Insurance Solutions
E: [email protected]
P: 07 3899 5129

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in Strata News #483.

ARTICLE: Government Backed $10Billion Reinsurance Pool to Assist Northern Australia Policy Holders

The Federal Government has recently announced a $10billion reinsurance pool which has been introduced to address issues of affordability and availability of insurance for policy holders in Northern Australia.

Insurance premiums, excess and terms & conditions for policy holders in Northern Australia are significantly less favourable than elsewhere in Australia. Those conditions mean that in extreme circumstances, premiums can be as much as twenty times the cost of insurance than in other parts of Australia. Policy conditions, such as exorbitant excesses as much as $500,000, can also mean that there is no access to cover when a policy holder needs it.

The cost of insurance has forced many policy holders into a position of not insuring or underinsuring because insurance is unaffordable or not available.

The newly announced measure will mean the government will provide reinsurance to private insurance companies for cyclones and related flood damage.

The government anticipates the new measure will deliver a saving of more than $1.5billion for a period of 10 years for household, strata & small businesses. An additional $40million will be provided as an investment in making older strata buildings more resilient to cyclone and other extreme weather events.

The devil will be in the detail and the federal government will be working on the design of the program with various stakeholders over the coming 12 months.

It remains to be seen whether the newly announced measure will assist the right demographic and provide meaningful assistance in addressing the affordability and availability of insurance for impacted policy holders. The government have not yet provided information on how much premiums may fall by.

The program is scheduled to take effect from July 2022.

Tyrone Shandiman
Strata Insurance Solutions
E: [email protected]
P: 07 3899 5129

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in the May 2021 edition of The QLD Strata Magazine.

Read more:

• Federal government announces reinsurance pool to cover cyclone damage in northern Australia
• QLD: Northern Australia Reinsurance Pool to Bring Long Overdue Relief for Strata Owners and Residents

ARTICLE: Self-Insuring Cyclone Cover – North Queensland

The cost of insurance in North Queensland (& other parts of Northern Australia) is placing an unreasonable burden on bodies corporate, in some cases premiums are twenty times more than the cost of insurance in other parts of Australia.

La Nina weather patterns expected in the coming cyclone season has forecasters’ anticipating higher frequency and severity of cyclone events. So, while the expense related to insurance may seem unreasonable, the need for insurance is arguably more important in the coming cyclone season than in past seasons.

Compliance with legislative requirements to have insurance for full replacement value is becoming more and more difficult for bodies corporate. This is following the withdrawal of a number of key insurers in recent years and other insurers changing guidelines to reduce their appetite for insuring buildings in North Queensland.

This article will consider a number of aspects in relation to self-insurance and we will base our article on The Body Corporate and Community Management (Standard Module) Regulation 2008 applying. It should be noted new regulation comes into effect in March 2021 with similar provisions. While this article provides opinion on certain provisions of the legislation, the commissioner and ultimately judges have a higher authority on any determination or application of legislation.

Ways of “Self-insuring”

Self-insuring can be done in several ways and can mean the body corporate:

1. takes out a policy with a very high cyclone excess;
2. takes out a policy with a cyclone exclusion;
3. does not take out insurance at all.

We will explore these three ways of self-insuring in further detail.

High Cyclone Excess

High cyclone excesses are one consideration for the body corporate.

Insuring a $5,000,000 building and electing say a $1,000,000 or even $5,000,000 cyclone excess may comply with section 179 to insure the building for damage for the reinstatement of property to its condition when new.

Notwithstanding, section 184(2) requires that the excess does not impose an unreasonable burden on owners of individual lots.

An owner may be in a position to suggest that the election of a $1,000,000 or higher cyclone excess, when a much lower excess option was available, would create an unreasonable burden on the owner. Particularly if there was a claim affecting only one lot and the lot owner was responsible for the excess.

To reduce the burden on a lot owner/s, the body corporate may pass a motion at a committee or general meeting that in effect means the body corporate pays the excess for all cyclone claims, given all owners are benefiting from lower premiums. This may avoid an instance where one lot owner then becomes responsible for the excess.

Contrary to this, it may be argued that say for instance a $1,000,000 cyclone excess paid for by the body corporate still creates an unreasonable burden on owners; for example a $1,000,000 excess paid for by 20 units would cost $50,000 per lot. Likewise, if say only one or two lots suffered severe damage of say $100,000 each and this was below the excess, it may be argued the excess may create an unreasonable burden on owners. The body corporate is not able to pay for repairs inside an owner’s lot in instances where a claim falls below excess.

Legislation remains silent on any consideration the burden of excessive premiums is having on owners.

Cyclone Exclusion

In a search of body corporate commissioner decisions, we were unable to find any reference material on this particular point.

Section 179 and Section 176 of Standard Module Regulation requires cover for “storm damage” to be insured by the policy. Storm damage is not only limited to cyclone, for example, other types of storms can include (but not limited to) hail, thunderstorm, heavy rain/winds etc.

So, this brings the question of whether insuring for storm damage but specifically excluding the event of cyclone is compliant?

The legislation is not quite clear on whether the policy must cover all types of storm without the possibility for certain exclusions (such as cyclone category 1-5). If this is the case, no insurance policy in Australia would comply with the requirements in regulation if certain events could not be excluded.

Regulation states that damage, for coverage under strata insurance must include (among other things) “…earthquake, explosion, fire, lightning, storm, tempest and water damage…”. Below are common exclusions in strata insurance policies today where compliance would be an issue if there was a requirement to insure these events in all circumstances without the ability to exclude certain events.

• Action from the sea, high water or tidal wave (water damage),
• Flood (water damage),
• Where the building is unoccupied for more than sixty days (all types of events),
• Damage due to warlike activities (fire, explosion),
• Damage caused intentionally (fire).
• Damage indirectly caused by faulty workmanship (all events).

Strata Insurance Solutions believes there may be a fair argument to suggest that a policy covering storm damage but excluding damage caused by cyclone category 1-5 can comply with the act, factoring in other examples stated above.

We would be interested to hear the commissioners’ position on this.

Alternate or No Insurance

Regulation requires that the body corporate must among other things, insure for the reinstatement of property to its condition when new for full replacement value.

Where a body corporate cannot comply with this requirement, section 179(4) provides that the commissioner may authorise a form of “alternative” insurance.

It is important to understand that having no cover whatsoever is a contravention of the act and not considered “alternative” insurance. The commissioner can authorise alternate cover if they are satisfied that what is being proposed gives cover that is as close as practicable to the requirements in the act. For example, in one instance the commissioner approved a combined cover amount of 70% of the full replacement value; in that case, the commissioner determined having some cover was better than no cover at all.

A decision to self-insure does not constitute alternative insurance and cannot be approved by the Commissioner. The only way to have a “no insurance” whatsoever would be for the body corporate to blatantly disregard the requirements under the BCCM Act; this could expose the body corporate to fines and penalties and expose the office bearers to legal negligence claims.

If you are considering alternative insurance we recommend reading Practice Directions (no. 28) which provides more guidance on an application for alternative insurance.

Risk management

If the body corporate does end up considering a form of self-insurance for the risk of cyclone, the body corporate should place strong consideration into managing its exposure to cyclone damage.

We recommend consideration is placed into contacting James Cook University for a Cyclone Resilience Report.

This FREE report can be ordered by filling the form NQSIP, the report gives practical measures bodies corporate can consider in relation to making their building more resilient to cyclone.

Tyrone Shandiman
Strata Insurance Solutions
T: 07 3899 5129
E: [email protected]

This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances and the specific coverage afforded under their policy wording. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.

This post appears in Strata News #413.

Have a question about the unfair cost of insurance in North Queensland or something to add to the article? Leave a comment below.

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Read Next:

• Strata Insurance Ratings for 2020
• NAT: High Premiums Leading to Rise in Uninsured Homes in Northern Australia

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