Question: What can owners do if a new insurance valuation is significantly lower than previous valuations and may leave the scheme underinsured?
At our last AGM, our strata manager put forward a motion to obtain a new valuation and adopt it for the owners corporation’s insurance renewal. The new valuation is significantly lower than the valuations obtained 8 and 3 years ago, despite rising construction and labour costs.
Industry experts suggest the valuation underestimates reinstatement costs by about $1M, or $200K per dwelling. The new insured amount is $662k less than last year’s policy. I raised these concerns, but the strata manager responded that the owners had already voted at the AGM to adopt the new valuation.
The Act requires a valuation to be tabled at the AGM, but given the large discrepancy, the strata manager should have questioned it. The chairperson redirected me back to the strata manager, and we’re voting in a ballot. I am concerned that other owners will accept the cheaper insurance, leaving the scheme underinsured. What can owners do in this situation?
Answer: Put a recommendation to the committee to seek a second opinion from another qualified valuer.
This is understandably a frustrating situation, and I can appreciate your concern about the potential risk of underinsurance.
There isn’t necessarily a clear-cut ‘right’ or ‘wrong’ here. If the owners corporation has engaged a qualified valuer, it is generally entitled to rely on that professional advice. However, where there is a significant discrepancy between a new valuation and prior valuations, particularly in the context of rising construction and labour costs, it’s entirely reasonable for owners and the strata manager to question the result and consider whether further due diligence is warranted.
At this stage, it may be worthwhile to make a recommendation to the committee to seek a second opinion from another qualified valuer. This would help provide clarity and allow the owners corporation to make an informed decision, ideally through an extraordinary general meeting or amended ballot.
This post appears in Strata News #757.
Tyrone Shandiman Strata Insurance Solutions E: tshandiman@iaa.net.au 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.