Understand the current Strata Insurance market landscape, how to achieve the best outcome for your strata property, and what’s on the horizon for 2021.
Strata Insurance Market Overview
The Strata Insurance market is experiencing considerable rate rises and cover availability is becoming increasingly restrictive.
Major losses across the insurance industry, in particular the strata space, have seen insurers forced to increase insurance premiums and tighten underwriting guidelines on properties that have experienced high loss ratios and frequent claims, as well as those with defects or maintenance issues.
Insurance companies are unfortunately forced to take such measures to protect their profitability and financial health.
The hardening insurance market
Insurance markets are cyclical, and the trends we are seeing at present for Strata Insurance, possess all the characteristics of a hardening insurance market. Refer Diagram 1. which demonstrates how the insurance market functions in both hard and soft conditions.
Key Strata Insurance trends
Due to the tightening of underwriting guidelines, we have seen changes in risk appetite over the last 12 months. This can lead to the following scenarios:
- Special policy conditions and insurance cover exclusions being applied to strata properties that are categorised as “high risk” (see below for details on what constitutes “high risk”).
- An increase in excesses for properties with a high frequency of claims.
- Construction excesses and cover limitations being applied to certain policy sections.
- Short termed renewal periods being offered by insurers where defects have been outstanding for a long period of time.
- Reduced coverage capacity for Expandable Polystyrene Sheets and Aluminum Composite Cladding risks.
High risk categories
If any of the below apply to your strata property, the building may be deemed “high risk” by insurers:
- Presence of Expanded Polystyrene Sheets and Aluminum Composite Panels
- Outstanding defects
- Building notices or building orders issued
- A high claims loss ratio or substantial outstanding claims
- Vacant properties (applies to both residential and commercial strata)
- Ongoing construction for staged developments
- Crane exposure during construction
- Expandable Polystyrene Sheets and Aluminium Composite Cladding are on insurer’s radars more than ever.
- Cladding excesses ranging from $5,000 to $100,000, or 10% of the Building Sum Insured are being applied to many strata properties in the event of a fire, where Aluminium Composite Cladding contributed to the outcome.
- Insurers require a Building Materials Report, or the names of the products used in the construction of the building, their location and percentage to assess the risk correctly. This applies for renewals and new developments.
- Updates on cladding removal works should be provided to your broker to ensure the insurer is informed on any changes to the building risk.
- All defects must be reported to your insurance broker and insurer, as per your Duty of Disclosure requirements.
- Insurers are requiring defect rectification works to be acted upon promptly.
- If defect rectification is not achieved, insurers must adhere to their underwriting guidelines which can result in premium increases, greater deductibles (excesses), special terms and conditions, and short termed policies which may leave a property without coverage.
Strata Insurance premiums
- On average, Strata Insurance policies are currently experiencing premium increases of 10-20% or more for properties with no outstanding claims or defects.
- Strata properties with identified issues will see substantially higher premium rate rises. Why? Insurers must price strata property insurance to reflect the risk and characteristics of the building.
- An increasing number of strata properties are classed as ‘very high risk’, and carry high repair costs. This can be due to location, age, design and construction methods.
- Claims history, maintenance problems, and the way in which a building is used can also affect the risk profile of the property, subsequently impacting the premium rates applied. E.g. the building may contain units used for holiday letting and/or ‘high risk’ business activities.
- Strata Insurance claims are increasing in frequency due to the growing number of severe weather events / natural catastrophes we are experiencing in Australia. This increase in claims places insurer profits under strain and results in upward pressure on Strata Insurance premiums across the board, in particular those properties which suffer claims.
- Insurers are reluctant to provide quotations for properties with pending insurance claims, and / or outstanding rectification works yet to be undertaken.
Emergency Service Levy increase (ESL)
- Recent catastrophes have contributed to the ESL rate increase across both residential and commercial strata properties.
- Residential rates have increased from approximately 15% to 23%, and commercial from 30% to 40%. Please note that rates can vary across different insurers.
The forecast for 2021
Insurers and market analysts are predicting the Strata Insurance market will continue hardening for the foreseeable future.
Rest assured however that the present Strata Insurance market conditions will not continue indefinitely. Once claim ratios improve, potential legislative measures are implemented, and sufficient capital flows back into the Strata Insurance market, it is likely rate increases will curtail, and swing back towards softer market conditions.
Achieving the best Strata Insurance outcome
A skilled Strata Insurance broker can be instrumental in keeping price increases to a minimum for your Owner’s Corporations, while also negotiating the best possible policy terms and conditions.
Contact your strata manager or Whitbread Strata Insurance specialist for advice, and insurance solutions.
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.