What’s in store?
In 2024, the world of strata is looking to be a lot like 2023:
- Premium increases
- A reluctance to perform valuations and underinsurance
- Ongoing defects and limited access to cover
- Rising energy and repair costs
While the above features roll on into 2024, we also expect to see:
- More cases of financial hardship and levies in arrears
- SCA Strata Insurance Disclosure Best Practice Guides
- Legislation reviews in VIC and NSW
Premium predictions
While we don’t have a crystal ball, the market indicates that premiums will increase between 10% to 15% across the board for good risks without defects and claims.
Properties with defects and a poor claims experience will continue to experience larger premium increases and potentially higher than standard excesses imposed. Again, insurers will require details on any defect rectification and risk mitigation.
Valuations and underinsurance
In hard insurance markets with increasing premiums, there is little uptake of insurers suggested building sum insured increases. Also, there is often a reluctance to perform a valuation as it may result in an increase in sum insured and premium.
The ongoing labour and materials shortage are resulting in dramatic inflation in construction costs that well exceed CPI. Sums insured are not keeping pace with CPI let alone cost of construction.
In a report by the Master Builders Association in NSW, building material costs are now increasing at their fastest rate since 1980. Right across Australia, the cost of materials used in buildings has increased by +4.2% during the March 2022 quarter and are now +15.4% higher than the previous year. This year the sharpest price increases included:
If a strata property has not been valued in the last 12 to 24 months it is likely to be underinsured, leaving owners liable for any shortfall in the event of a total loss. Now is the time to act.
Proactivity is vital
Full disclosure and evidence of a proactive approach to managing defects is what insurers are looking for when underwriting a property.
A few tips include:
- Disclosing all defects, claims and any works being carried out
- A good maintenance program to keep the building in good repair
- Ensuring that all safety checks are performed when due
- A valuation by a qualified professional every three years at a minimum to avoid underinsurance
This practice will help to avoid issues and delays in obtaining quotes during the renewal process and at the time of a claim.
The questions insurers are asking on renewal continue to be:
- Is the information on your building accurate?
- Are you adequately covered?
- Is it time for a valuation?
- Are the security and fire protection details up to date?
- What progress have you made with any defects?
The impact of rising costs
While strata owners are managing interest rate increases, levies may also need to be adjusted to allow for increases in insurance premiums, energy costs, labour costs and building materials.
This will lead to increased financial and mental stress. Premium funding may be needed, and we may see greater cases of financial hardship and levies in arrears.
SCA Strata Insurance Disclosure Best Practice Guides
SCA recently released the strata insurance best practice guides to improve strata committee understanding of the fees, charges and overall amounts totalled for strata insurance policies. The guide focuses on three key areas:
- Disclose The disclosure of the eight financial items of each strata insurance placement.
- Document What to document and how to document it, including templates.
- Communicate How and when to communicate with all parties involved.
Legislation
Victoria
The Building Legislation Amendment Bill 2023, includes a variety of amendments to the Building Act 1993 (Building Act), Architects Act 1991 (Architects Act) and other relevant legislation proposed as a means of boosting consumer confidence in the quality and safety of buildings, many of which are under strata title.
NSW
The Strata Legislation Amendment Bill 2023 was passed on 11 December. The reforms were shaped by insights collected from the statutory review of the Strata Schemes Management Act 2015 and the Strata Schemes Development Act 2015, alongside regulations governing community land schemes.
They are intended to enhance strata living by improving transparency, governance and fairness by introducing key changes to:
- The strata renewal process
- Pets and assistance animals
- Strata and Association Committees
- Meeting governance
- Overall governance of schemes
- Strata Managing Agents notice of contract expiry
NSW Emergency Services Levy (ESL) reform
Some other good news is the NSW Government is looking to remove the Emergency Services Levy (ESL) on insurance premiums. ESL accounts for around 18% of strata premiums and New South Wales insurance customers pay around three times the amount of state taxes than Victorian insurance customers. On 16 November 2023, NSW Premier Minns committed to reform the ESL and launched a consultation process with the industry and its stakeholders to work out the best options for NSW.
Achieving the best Strata Insurance outcome
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. Please contact your Whitbread insurance broker if you would like to know more about what to expect in 2024 or to discuss a particular risk in greater detail.
T: 1300 424 627
E: info@whitbread.com.au
Important notice
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