This article is about the strata insurance dispute resolution process.
Table of Contents:
- QUESTION: Can the committee be held accountable for providing an untrue report for insurance renewal? What can owners do to prevent this from happening?
- QUESTION: We had the unit plan revalued for insurance purposes. The official valuation was lower than the value the complex had been insured for. How can the owners corporation ensure we are insured for the “correct” amount?
- QUESTION: What are the dangers of underinsurance? This is particularly relevant in the current climate where valuations are rapidly skyrocketing.
Question: Can the committee be held accountable for providing an untrue report for insurance renewal? What can owners do to prevent this from happening?
Answer: Make sure the committee is not coming up with that figure themselves.
The most important thing here is to ensure the committee is not coming up with that figure themselves. The committee could be liable if they’ve come up with that figure themselves.
It’s important to engage an independent professional to come up with that figure. Also, ensuring the professional has suitable professional indemnity insurance is important. That way, even if their assessment comes up and you are underinsured, at least you are covered by that professional indemnity insurance in the worst case scenario.
Zac Gleeson
GQS
E: [email protected]
P: 0419 755 896
This post appears in the February 2024 edition of The NSW Strata Magazine.
Question: We had the unit plan revalued for insurance purposes. The official valuation was lower than the value the complex had been insured for. How can the owners corporation ensure we are insured for the “correct” amount?
In 2020, in response to an owner’s questions about the cost of insurance and the EC’s subsequent investigation into insurance prices, we had our group of Class B townhouses in the ACT revalued for insurance purposes.
Surprisingly, the official valuation was some $5,000 lower than the value the complex had been insured for. After careful consideration and some back and forth with the strata manager and the insurance agent, the owners corporation opted to accept the new, lower valuation for insurance purposes.
What if we were to find out the valuation was too low? Do we have any come-back on the company’s professional indemnity insurance? How can the owners corporation ensure we are insured for the “correct” valuation?
Answer: It is not an infrequent occurrence for a valuation to yield a figure lower than the current insured value.
Quantity Surveyors are professionals that provide Insurance Rebuild Valuations. Owners corporations rely on these professionals for precise valuation assessments.
It is not an infrequent occurrence for a valuation to yield a figure lower than the current insured value. This is due to insurers incorporating automatic indexation during each renewal, occasionally causing the indexed sum insured to surpass the value derived from a fresh rebuild valuation.
In the unfortunate event of a property’s complete loss and subsequent underinsurance, the Owners Corporation may have the option to pursue legal recourse against the Quantity Surveyor, citing an undervalued rebuild valuation. Legal advice is recommended in such instances based on the specifics of the issue. Quantity Surveyors should have professional indemnity cover to cover the cost of defending and settling claims associated with erroneous or negligent advice given.
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter.
Tyrone Shandiman
Strata Insurance Solutions
E: [email protected]
P: 1300 554 165
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 Advisenent Australia AFSL No 240549, ABN 15 003 886 687.
This post appears in Strata News #661.
Question: What are the dangers of underinsurance? This is particularly relevant in the current climate where valuations are rapidly skyrocketing.
Answer: The danger of underinsuring is that you will have a major or total loss and not be covered.
There are a couple of dangers with under insurance. First and foremost, by law, you must ensure your building for full replacement value in every state and territory in Australia. Failing to do so can result in fines and penalties for the owners corporation.
I’ve seen a building that didn’t get a valuation every five years and was underinsured and it was a total loss. In the event of a total loss, unfortunately, the body corporate or owners corporation has to make up the losses for that claim. The danger of underinsuring is that you will have a major or total loss and not be covered.
Most property policies have a clause that says if your insurance value is 80 percent or below what it should be, the insurance company will only pay a portion of that claim if it’s a partial loss. With strata Insurance, because you’re required to insure for full replacement value, that clause is not part of the policy.
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 Advisenent Australia AFSL No 240549, ABN 15 003 886 687.
This post appears in the July 2023 edition of The NSW Strata Magazine.
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“Most property policies have a clause that says if your insurance value is 80 percent or below what it should be, the insurance company will only pay a portion of that claim if it’s a partial loss. With strata Insurance, because you’re required to insure for full replacement value, that clause is not part of the policy.”
Not true! Strata policies are all different in their applications. For instance:
Longitude residential strata PDS Section 1 cl5.1 Catastrophe–states:
For the purpose of this Additional Benefit only, the following
additional definitions apply:
– Catastrophe means any occurrence that gives rise to
the declaration by the relevant authority of a state of
emergency affecting the area in which the Buildings
are situated.
– Cost of Evacuation means the costs incurred for any
form of transport to the designated place of evacuation
and subsequent return to the Location to resume
permanent residency.
– Increased Costs means:
i) for Insured Property – the difference between
the cost of reinstatement or replacement actually
incurred in accordance with the Basis of Settlement
provisions of this Section 1 and the cost of
reinstatement or replacement that would have
applied had the Catastrophe not occurred.
ii) for the Additional Benefits – the difference between
the amount payable for the costs, expenses, fees
or other charges covered by the Additional Benefits
and that which would have been payable had the
Catastrophe not occurred.
This Additional Benefit applies provided that the Sum
Insured under Section 1 represents no less than 80% of
the cost of reinstatement or replacement immediately prior
to the Catastrophe.
The problem with this is there is no definition in the policy of what constitutes the formulation of replacement value immediately prior to the Event.
Thank you for your comment and for engaging with the content of my blog answer. I think it is important to clarify the distinctions between underinsurance clauses (referred to in my blog) and additional benefits (catastrophe cover).
Underinsurance Clauses: Underinsurance occurs when the sum insured is less than the actual value of the insured property at the time of loss. An underinsurance clause in a policy penalises the insured for not insuring the property to its full value by only paying a proportion of any claim. For example, if a property is insured for only 50% of its actual value, in the event of a claim, including a partial loss, the insurance company may only pay 50% of the loss amount, based on the underinsurance clause. This is designed to encourage policyholders to accurately insure their property’s value.
Catastrophe Insurance Benefits: – Catastrophe cover provides additional cover on your sum insured if your property is damaged in a Catastrophe (state of emergency) event. Cover is offered because in catastrophe events, re-build costs increase due to higher demand, which increase the cost of labour and building materials. The insurer we have recommended has an option which increases your building sum insured by 15% or 30% in the event of a catastrophe. The benefit you mentioned, which does not apply if a building is insured for less than 80% of its value, is a criterion for eligibility rather than a penalty mechanism like an underinsurance clause. It’s a threshold to qualify for the additional benefit for catastrophe, not a mechanism for an insurer to reduce claim payments.
I hope this clarification helps. It’s important for all insured parties to thoroughly understand their policies and the implications of these clauses and benefits. Accurate insurance valuations are highly recommended to avoid the issue of underinsurance all together.
Tyrone SHandiman
Hi,
Not sure if this is the correct forum for my question.
I am a newbie lot owner of 1 lot of a 2 lot unit property with a common wall, in Queensland.
The strata insurance was renewed by the Body Corporate Manager in February 2024 following a valuation by a quantity surveyor.
We have paid our half of the premium however we are unsure whether the owners of the other lot have paid their half as we haven’t received the new Certificate of Insurance. The Strata Manager is not responding to our requests for information – what remedies do we have?
Hi Geraldine
We’ve answered a similar question here:
Question: In a duplex, what if the other lot owner will not contribute to insurance? In a duplex, can each lot owner take out insurance separately? What are the rules about duplex insurance in Queensland?
For Lynette Johns-Boast re the gap of $5,000 between the previous insured value and the new valuation. Given that strata insurance premiums are often measured in terms of how many $1,000s of premium for every $1,000,000 of cover (currently around $1,200 per $1Million in S-E QLD) I would have thought a $5,000 gap in the cover would have little $$$ effect on your premiums. We seem to be talking about a $5 saving here, when you opted for the new valuation…. or am I missing something.
I also understand that quantity surveyors make no pretense of 100% accuracy with their insurance valuations, and openly acknowledge a 5% ‘plus and minus’ margin of error. If, for example, the complex is insured for $900,000 and the valuation is for $895,000, the $5000 gap fits comfortably within that margin.
Also, how often does you complex commission a fresh valuation, and how much does it cost?
Hi there
I have a question related to under insurance of a group of Class B townhouses in the ACT.
In 2020, in response to an owner’s agitation about the cost of insurance and the EC’s subsequent investigation into insurance prices, we had the Unit Plan revalued for insurance purposes. Surprisingly, the official […] valuation was some $5,000 lower than the value for which the complex had been insured. After careful consideration and some back and forth with the Strata Manager and the insurance agent, the OC opted to accept the new, lower valuation for insurance purposes.
What if, now, we were to find out the valuation were too low? Do we have come-back on [the company’s] professional indemnity insurance? Really, I guess, how can the owners corporation ensure that we are insured for the “correct” valuation?
Many thanks.
Concerned owner.
We have responded to your comment in the article above.