For developers of new strata properties in Australia, securing comprehensive insurance coverage is a critical step in the development process.
However, common questions often arise, particularly around the need for detailed construction material breakdowns and percentage allocations. In this article, we address some of the most frequently asked queries and explore key considerations when insuring new developments.
Why do insurers require construction material details and percentage breakdowns?
The answer lies in risk assessment. Different materials have varying levels of durability, fire resistance and vulnerability to environmental factors, all of which impact the policy structure and premiums.
Insurers need to understand the percentage breakdown of these materials to calculate risk exposure accurately. For instance, a development with a high proportion of non-combustible materials may attract lower premiums due to reduced fire risk. Conversely, the use of combustible cladding or lightweight materials may increase costs or even affect insurability.
Factors influencing insurance for new developments
Beyond material specifications, multiple factors can influence insurance coverage and costs of new strata developments.
1 When does strata insurance need to commence?
Strata insurance for a new development must commence as soon as the Occupancy Permit (OP) is issued. This is a key trigger point for insurers, who base their coverage on the issuance of the OP rather than the builder’s declaration of practical completion. From an insurer’s perspective, the OP signifies that the development is ready for occupation and therefore exposed to insurable risks. Developers should be prepared to bind cover from the date the OP is granted to ensure there are no gaps in protection.
2 How do you insure a staged development
For developments completed in stages, insurance arrangements can become more complex. Each stage must be assessed and insured according to its individual risk profile and construction timeline. Where construction continues alongside already-completed stages, insurers may require clear delineation of the stages, updated valuations, and confirmation of separation measures (such as fire walls or physical barriers) to manage risk.
Communication is key in staged developments. Providing insurers with a clear overview of the development plan, anticipated completion dates and occupancy timelines helps ensure appropriate cover is in place as each stage progresses.
3 How do cranes impact insurance on site?
Crane exposure is a significant factor for insurers when construction activity continues on or near an already-occupied site. If cranes are operating over completed buildings or common areas, this introduces additional liability concerns that need to be addressed.
When it comes to vertical staged handovers, it’s important to note that most insurers are unable to offer coverage under a strata policy while a crane remains on site. This is because the presence of a crane typically indicates that the property is still considered an active construction site, which falls outside standard strata underwriting guidelines. In these cases, alternative insurance solutions must be explored to ensure appropriate coverage during this transitional phase. A strata policy can only be implemented once the crane has been removed and the site is no longer classified as live construction.
4 What role does the type of building play in strata insurance costs?
The design and structure of the building can significantly impact insurance premiums. For example, high-rise developments or properties with complex designs may present additional risks, which could increase insurance costs. Factors such as the number of storeys, building materials, and the inclusion of amenities like pools or gyms also play a role. Developers should consider these factors early in the planning stage to get accurate insurance quotes.
5 What exclusions should developers be aware of in their strata insurance?
It’s essential for developers to understand the exclusions in their strata insurance policies. Common exclusions could include damage due to faulty workmanship, wear and tear, or damage caused by the tenant’s negligence. Being aware of these exclusions upfront can help developers manage potential risks and ensure that they have the necessary supplementary cover in place for specific risks not covered by standard policies.
6 How does the history of a site impact insurance for new developments?
If the development is on a previously developed or contaminated site, insurers may require additional assessments before offering coverage. Sites with a history of flooding, subsidence, or other risks may attract higher premiums or require additional conditions. Developers should ensure that any environmental risk assessments are completed well before insurance is arranged.
7 Importance of providing the correct replacement value
A key element in strata insurance is determining an accurate replacement value. Underestimating this figure can lead to coverage shortfalls, while overestimation results in unnecessary premium expenses.
8 How to calculate replacement value
Replacement value is calculated by factoring in:
- Construction costs
- Goods and Services Tax (GST)
- A contingency buffer to cover unforeseen expenses
Obtaining a professional valuation ensures that your coverage aligns with actual rebuilding costs should a claim arise.
9 The role of valuations in insurance coverage
From the outset, securing a formal valuation provides a benchmark for accurate replacement costs. This valuation should be updated periodically to reflect market fluctuations and cost changes, ensuring that coverage remains adequate over time.
10 Documentation required by insurers
To commence cover, insurers typically require:
- Approved building plans
- Detailed construction material specifications
- Compliance certificates
- Independent valuation reports
Providing these documents up front streamlines the underwriting process and avoids delays in policy activation.
11 Addressing insurance and defects
Defects in construction can lead to major insurance issues. If not disclosed or rectified, structural faults may void coverage or result in costly claims disputes. Developers should proactively conduct defect assessments and rectify issues to maintain policy compliance.
12 Commercial ratios in mixed-use developments
For developments incorporating both residential and commercial lots, it is essential to understand how the commercial ratio impacts insurance. Higher commercial occupancy can lead to increased premiums due to higher foot traffic, operational risks and liability exposures. Insurers assess the proportion of commercial to residential space when determining policy terms and costs.
13 How often should insurance be reviewed during the construction process?
As the construction process progresses, so too may the risks associated with the property. It’s a good idea to review insurance coverage periodically, especially when there are changes to the development, such as additional phases or new types of construction. This ensures that coverage remains appropriate and that any new risks are accounted for during the underwriting process.
14 How can developers ensure their insurance policies are tailored to their specific needs?
Working with a broker who understands the unique needs of property developers is key to getting the right coverage. Brokers can help tailor policies to suit the size, location and complexity of the development, ensuring that risks are accurately assessed and covered. Developers should engage with their brokers early in the planning process to ensure their insurance reflects the specifics of the development.
Achieving the best insurance outcome
Navigating the complexities of strata insurance requires expert guidance. Whitbread specialise in tailored insurance solutions for developers, ensuring policies align with the specific risks of each project.
As a broker, our recommendation will not always be based on price. When comparing quotes and policies, it is important to consider the product inclusions, excesses/deductibles, exclusions and cover limits for each insurer. For more information on securing comprehensive coverage for your new development, contact your contact your Whitbread insurance broker if you’d like to review your current policies or chat about your requirements in greater detail.
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E: info@whitbread.com.au
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