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, several other factors influence insurance coverage and costs of new strata developments.
1 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.
2 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.
3 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.
4 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.
5 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.
6 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.
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.
T: 1300 424 627
E: info@whitbread.com.au
Important notice
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
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This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228, License Number 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.
