Strata Insurance Affordability and Availability: What You Need to Know

What’s Driving Premium Increases?

The rising cost of strata insurance can be attributed to several key factors:

1. Natural Disasters and Climate Change
   Extreme weather events, such as cyclones, floods, and bushfires, are occurring with greater frequency and intensity. Insurers are grappling with increased claims, particularly in high-risk regions, which has led to a rise in premiums to offset these costs.
2. Building Valuations
   Escalating construction costs and inflation have significantly increased building replacement values. This, in turn, raises the sums insured, pushing premiums higher.
3. Reinsurance Costs
   Reinsurance is the insurance that insurers purchase to protect themselves from significant claims. The global reinsurance market has been under pressure due to catastrophic events worldwide, increasing costs for insurers and, by extension, policyholders.
4. Strata-Specific Risks
   Factors like ageing buildings, deferred maintenance, and the complexity of strata ownership structures can elevate risks and, consequently, premiums.
5. Building Defects
   Building defects such as structural integrity issues, waterproofing, faulty pipes and inadequate fire protection continue to be major concerns for Owners and Insurers alike resulting in significant losses and need for rectification and repairs.

Why Are Some Properties Struggling to Secure Cover?

Securing insurance has become increasingly challenging for properties in disaster-prone areas or those with adverse claims history and major defects. Insurers are cautious about underwriting policies for high-risk properties, and some are exiting the strata market altogether. This has led to reduced competition and limited options for many strata communities.

Impact on Strata Communities

Higher premiums and limited availability don’t just strain budgets—they can also impact the long-term financial health of strata communities. These challenges may lead to:

• Increased levies for property owners to cover premium hikes.
• Difficulties in meeting legal obligations to maintain adequate insurance.
• Financial stress for owners in areas already grappling with high living costs.

Navigating the Current Landscape

While the challenges are significant, there are strategies to help strata communities manage affordability and availability concerns:

1. Engage an Insurance Specialist
   Working with an experienced insurance broker can help strata communities understand their risk profile and access tailored solutions. Brokers can also provide guidance on risk mitigation strategies to improve insurability.
2. Proactive Risk Management
   Regular building maintenance, risk assessments, and implementing measures to reduce hazards (e.g., fire safety upgrades, flood-proofing) can demonstrate to insurers that the property is a lower risk.
3. Explore Alternative Markets
   In some cases, strata communities may benefit from exploring specialised or alternative insurance markets that cater to high-risk properties.
4. Plan for Rising Costs
   Building premium increases into strata budgets and educating owners about the market challenges can ease the financial burden and create a more resilient community.
5. Building Valuations
   Incorporate a routine building valuation reassessment in your regular budgeting process, with an aim to conduct a certified Insurance Replacement Valuation, at least every 3 years. Building valuations ensure the property is adequately protected, taking into account costs such as removal of debris, professional fees and escalation of costs over the reconstruction period.

The Road Ahead

Strata insurance will remain a cornerstone of protecting strata properties, but its affordability and accessibility will require ongoing attention. Industry collaboration, regulatory review, and a proactive approach from strata communities are essential to ensuring long-term sustainability in this critical sector.

At its core, the issue is about more than just insurance—it’s about safeguarding homes, investments, and communities. By understanding the current challenges and taking proactive steps, strata communities can navigate these turbulent times with confidence.

Disclaimer:

KBI PTY LTD is an Authorised Representative (450152) of KBI Group Pty Ltd (ABN 56 167 437 121, AFSL 494792). Any advice in this article is general in nature and does not take your personal circumstances into account. When considering the purchase of an insurance policy, you should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the KBI Financial Services Guide and relevant product disclosure statement.