This article discusses how strata properties are classified as residential or commercial for insurance purposes and why insurers may apply different criteria from the ARPC definition.
Question: How is a strata property classified as residential or commercial for insurance purposes, and why might insurers use different criteria?
The ARPC (reinsurance pool) definition classifies a strata property as residential if 50% or more of the total floor area is residential. By that measure, our building should be residential. However, our insurer has classified the property as commercial because just over 20% of our lots are commercial, even though that space only accounts for about 18% of the total floor area. Other insurers seem to apply different criteria. Is there an official definition or industry standard that determines how to classify strata properties for insurance purposes?
Answer: While your building may be residential under the ARPC definition, the insurer is within its rights to apply different criteria for underwriting purposes.
In relation to the Cyclone Reinsurance Pool (administered by the Australian Reinsurance Pool Corporation, or ARPC), it’s important to note that the definitions within the ARPC guidelines apply only to the components of the policy that the pool covers — namely, cyclone and terrorism. For those specific components, insurers may use the ARPC’s definition to determine whether the property qualifies for pool pricing.
However, insurers are not required to adopt ARPC classifications across the entire policy, and they typically apply their own definitions when underwriting the broader strata insurance policy. So it is entirely possible, and not uncommon, for an insurer to classify a property as commercial even if the ARPC would view it as residential under its 50% rule.
The best way to determine the commercial vs. residential mix is usually to:
- Calculate the internal floor area (in square metres) of each lot;
- Determine what percentage of the total lot area is used for commercial purposes; and
- Note that most insurers exclude common property when calculating the residential vs. commercial split.
So while your building may be residential under the ARPC definition, the insurer is within its rights to apply different criteria for underwriting purposes. This is why you might see classification discrepancies across different insurers.
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 the November 2025 edition of The WA Strata Magazine.
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