7 OCTOBER 2011

FACT SHEET

RESIDENTIAL STRATA INSURANCE IN AUSTRALIA

OCTOBER 2011 The material contained in this information sheet is designed to provide general information only and is not intended to provide personal or professional advice. Readers should not act on the basis of this material alone without taking appropriate professional advice relating to their particular circumstances.

7 OCTOBER 2011

COMMON QUESTIONS & ANSWERS RESIDENTIAL STRATA INSURANCE IN AUSTRALIA

What is strata insurance? Residential strata insurance, also known as Body Corporate cover in some states, is general insurance that covers common property under the management of a strata title or body corporate entity. Owners of strata titles typically share the premium costs of strata insurance as part of their strata fees and liabilities.

What does strata insurance cover? Strata insurance generally covers common property as defined on the title for the property. This might include common areas, wiring, lifts, pools, car parks, walls, windows, ceilings and floors. Under State legislation, strata insurance must also provide liability cover in the event that people are injured on common property. You should check what is covered under your strata policy.

Why purchase strata insurance? In all States holding strata insurance over common property and for public liability is mandatory. Aside from that, it makes sense to protect the investment you have made in the property by ensuring that there is a comprehensive level of insurance over common property.

What does strata insurance NOT Cover? Strata insurance is like any other form of insurance, there are restrictions to the policy expressed as exclusions. Make sure that you understand what is excluded from the policy that your body corporate or strata manager has purchased. Exclusions can be for certain risks, like landslip or flood, or for certain things, like fencing. Check your policy. Strata policies do not cover your contents and personal items.

What does strata insurance cost? Strata insurance in Australia has until very recently been underpriced compared to risk, with many strata holders paying on average 1/3rd of the premium paid for an equivalent stand alone residential property. Premiums are in the process of being adjusted by many insurers to more sustainable levels, this means increased costs for some. Recent premium increases experienced by the industry in some high risk regions have meant that average unit premiums are approaching those paid by the average household.

Controlling the costs? Premiums for an entire strata complex may seem expensive, but divide the premium by the number of individual strata units involved and on average the annual premium will often be less than that paid by standalone households in the same area.

One factor that can assist in lowering premiums is the setting of a realistic excess payment per strata unit. Households in Australia negotiate an average excess payment of $500. This is paid by the policyholder at the time of making a claim and brings the annual premium down in cost. Many strata managers and body corporates negotiate excess payments as low as $100 for the entire strata complex, meaning that the annual premium can become very expensive. This could be done by some strata managers so that many small claims can be made during the year to help with repairs that would be considered maintenance of the property, rather than using insurance to respond to large disaster events.

You can ask for a higher excess in order to lower your annual premium.

Will premiums continue to rise? Yes. Premiums are calculated based on the risk of insured events occurring and the costs of repairs. Both of these factors are increasing, which will lead to increased premiums.

Strata owners should also keep in mind that their policy often has to cover common property that the average home policy does not, for example car parks, stairwells, fire protection systems, lifts, pools etc. In some parts of Australia the risks to property are more significant than elsewhere.

Areas such as Far North QLD have experienced significant premium increases in recent times and some insurers have adjusted their appetite for underwriting in these areas – Choosing to reduce the number of policies they hold in that area, or to move to a more comprehensively priced product.

Where can strata insurance be purchased? A number of insurers in Australia provide residential strata insurance cover. Many strata managers or body corporates use a broker or specialist underwriting agency to find cover. Remember to ask questions and to read the policy that is offered.

Is this the only cover I need? No. Strata insurance only covers common property in the facility. This may include some of the fixed parts of your unit, but will not cover everything. It is important that you read the policy purchased by your manager or body corporate and to understand what is not covered in your unit. Importantly, strata insurance does not cover your contents. You should make sure that you have appropriate contents cover for your belongings and for those things that the strata insurance cover will not pay for in your unit.

Is strata insurance available in all areas of Australia? Some areas in Australia, like Far North QLD, face more risk factors than other parts, this means that fewer insurers are willing to offer insurance products and that those products offered will be priced according to the risks.