With the most significant Strata Law Reform* package in decades passing the NSW Parliament, it is essential that as a Strata Manager, you understand how these changes are going to impact the duties and obligations you have to your clients come November 30, 2016.
While many of the new laws affecting Strata Managers relate to disclosure, there are also several key changes with respect to insurance.
It is vital that Strata Managers comply with the changes affecting Strata Insurance. To assist you in understanding your obligations with regards to your clients’ insurance, Whitbread have put together a simple guide for you to follow.
From November 30, 2016 NSW Strata Managers need to implement and act upon the following changes:
1. Minimum of 3 insurance quotes at renewal
A requirement in the new legislation dictates that a Strata Manager MUST provide each Executive Committee with a minimum of 3 Strata Insurance quotations from different insurers. If 3 quotes are not presented to the committee, the Strata Manager must provide written reasons explaining why.
As you would know, sometimes insurers decline to quote certain properties based on their underwriting guidelines. If insurers do decline to quote a Strata property, the disclosure to the Executive Committee needs to outline the following:
- Which insurers were asked to quote
- Which insurers declined to provide a quote
In order to be able to recommend a specific policy to the Executive Committee from the 3 quotes obtained, we advise you consult an Insurance broker who is qualified to provide personal advice. An insurance broker will also help to lighten the increased workload associated with obtaining 3 quotes.
2. Disclosure of commissions and gifts
Commissions
Under the new laws, Strata Managers will be required to disclose information surrounding the insurance commissions they receive at annual general meetings (AGM) for each of the strata properties they manage. This information must be recorded in the minutes of the meeting.
Specifically, Strata Managers will need to:
- Disclose the dollar value of the insurance commission received for the property in the year prior
- Estimate the dollar value of what they believe they will receive in commissions for the property in the coming year
- Disclose where the commission comes from
Gifts
The new legislation will also require Strata Managers to disclose to Executive Committees any ‘gifts’ they receive. The term gift here is quite broad, and as such we have provided some context below.
A ‘gift’ may range from an insurance broker gifting a bottle of wine at Christmas, to a broker providing tickets to cover the cost of a Strata Manager attending a conference.
An example to clarify this new law…
In practical application, if a Strata Manager received $1,000.00 in insurance commissions plus they are given a ticket to a conference by an insurance broker, the Strata Manager must disclose both of these at the Annual General Meeting. E.g. ABC Insurance paid a commission of $1000.00, and ABC Insurance also provided 1 ticket to their Annual Conference to the value of $300.00.
In addition, the Strata Manager must then disclose expected commissions for the coming year – “We believe we will receive an Insurance commission for the coming year. If the Insurance premium remains the same we will receive $1000.00 again. We do not envisage receiving any further commissions”.
The Tribunal (NSW Civil & Administrative Tribunal) will be empowered to order a Strata Manager to pay over commissions to the OC if they are not disclosed or not disclosed in good faith.
3. Public Liability Limit – Now $20,000,000
Public Liability Insurance is designed to provide financial protection for the Owner’s Corporation (OC) against claims for damage to property, death or bodily injury where the OC may be held liable.
As of November 30, 2016 the minimum Public Liability Insurance limit legally required for NSW Strata properties will increase from $10,000,000 to $20,000,000. Therefore, $20,000,000 is the minimum level of Public Liability Insurance legally acceptable for NSW Strata properties.
Tip: Double check your client’s Strata Insurance renewals to ensure the insurer has updated the Public Liability Sum Insured to $20,000,000 with effect from 30 November, 2016.
4. Strata Insurance Sums Insured MUST account for total replacement costs
The Sum Insured should not be a static figure, and must be revised on an annual basis to account for increases in the Consumer Price Index (CPI). As such, the definition of a suitable Building Sum Insured has changed slightly to reflect the following:
The strata building Sum Insured must be sufficient to cover the cost to fully replace and reinstate the property.
For further advice here we suggest contacting a Sworn Professional Valuer to gain an accurate figure that accounts for increased costs of building and other variables.
5. Valuations – no longer mandated
The requirement to obtain insurance valuations every 5 years has been omitted from the legislation (current section 85). Although as referenced above, the services of a Sworn Valuer may still be required in order to ascertain an accurate Sum Insured for the building that accounts for total costs to fully replace and reinstate the strata building.
6. Talk to your Executive Committees about Office Bearers Liability cover
Along with the NSW Strata Law Reform comes an increase in the legal responsibility placed on strata Executive Committees.
The new NSW strata laws now include a provision for Executive Committees, stating that they must exercise due care and diligence in carrying out their duties as members of the committee. As a result of this new provision, it is widely believed that Strata Executive Committees will be exposed to an increase in liability claims for failure to act with due diligence and care in their capacity on the committee.
Bearing in mind a projected increase in liability claims, it is extremely important that;
- All NSW Executive Committees have Office Bearers Liability cover in place and;
- The cover they have is sufficient to protect them against the projected increase in the number and frequency of Office Bearers Liability claims.
Office Bearers Liability Insurance is designed to protect members of the committee where liability has arisen from an alleged or wrongful act, omission or breach of duty. Office Bearers Liability can cover the liability and legal costs up to the nominated Sum Insured. Note: fraudulent acts are not insured under this insurance policy. Office Bearers Liability is an optional cover but one that should be part of every Strata Insurance policy.
For more information on Office Bears Liability cover and to ensure your clients have a sufficient cover limit to protect them in a claim, contact your Whitbread Insurance Broker.
In summary, the 6 key changes affecting Strata Insurance are:
- Minimum of 3 Strata Insurance quotes
- Strata Managers must disclose ALL commissions and gifts received
- Minimum limit of Public Liability cover has increased to $20,000,000
- Strata Insurance Sums Insured must be sufficient to cover the total costs associated with rebuilding and reinstating the Strata property in a total loss
- Valuations no longer mandated
- Increased liability risk to Strata Executive Committees – talk to your clients about Office Bearers Liability
If you have any questions with respect to changes in the NSW Strata Reform affecting insurance, please contact your Whitbread Account Manager on 1300 424 627.
*Named the Strata Schemes Development Act 2015 and the Strata Schemes Management Act 2015, the twin laws came in at 117 and 141 pages respectively and contain 90 new features.
This insight 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 Licence Number: 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.
