Why are Strata Insurance Premiums increasing?
Insurance premiums are based on a number of rating factors and it usually starts by what the reinsurers of the insurer charge and the insurer then sets the base rate. Reinsurers are very important to insurers, as they underpin them, so that all valid claims can be paid.
Gradually over the last 3 years strata insurance premiums have increased, which is in line with the general hardening of insurance rates across the entire insurance property market. During the last 10 months or so, the increases have been more dramatic.
Why has this occurred?
For many reasons, not only have insurance premiums increased but so has the underwriting risk appetites of insurers to accept new business and to continue to insure existing strata schemes especially those that have unrectified maintenance defects and / or defects. It also appears to be the same, as we look ahead into 2022.
Listed below are some of the reasons we are seeing such increases;
1. Prior to COVID-19 insurance premiums were increasing. These increases were triggered by the sheer volume of strata’s increased frequency claims and claim costs, such as water and storm damage. It is found that many of these claims did not arise accidentally but through lack of maintenance, which led to the damage. An example was the build-up of leaf debris in gutters due to a lack of cleaning which then caused water to overflow, resulting in damage. Another example is shower grout breakdown, causing water to seep through wall cavities.
2. Insurers are expressing real concern over outstanding issues such as maintenance defects or defects that have not been attended to and are heavily increasing premiums and applying excesses to policies.
3. Prior to 2018 insurers had been heavily discounting premiums, due to increased competition and a period of fewer catastrophes in Australia. With premiums dropping to very low levels, increases are now necessary to support the current volume and frequency of claims.
4. In 2020, along came COVID-19 affecting the world globally and therefore affecting us locally in Australia too. A pandemic was not something the insurance industry was well prepared for within their wordings. This has been in dispute around the world, particularly relating to business interruption (i.e. loss of rent) commercial property impacts, and also Landlords Insurance, with rent default covers suddenly being withdrawn and policies rapidly re-written. As a result, and over time we will see new policies written and evolve from this event.
5. Locally in Australia, 2019 -2020 Black summer NSW experienced the biggest bushfire in recent recorded history, following this in 2021 both NSW and VIC experienced extreme flooding.
6. In Western Australia, Cyclone Seroja 2021 came down the coast hitting WA’s mid-west coast, edging closer to Perth. It wreaked havoc on unprepared buildings situated in towns that have never experienced such a cyclone, hitting the coast as a Category 3.
7. Meanwhile in Perth Hills region, we also experienced during summer 2020-2021 a bush fire that burned over 85 buildings.
8. More recently Melbourne Victoria has experienced a severe earthquake & flooding events.
In summary, global reinsurance companies service all insurers around the world, therefore whatever happens around the world, will affect the insurance premiums you pay. Additionally, local natural or man-made events will also play a huge part in these calculations and from an individual strata perspective, you may be further affected by the number of claims your scheme has made during a 5 year period or from unrectified defects.
Disclosure & your Strata Insurance Policy
When you buy insurance there are matters that may affect insurance, but unless you disclose it to the insurer, they will be unaware. As you have not clarified this matter with the insurer, you have no way of knowing that in the event of making a claim, your claim may be affected by the non-disclosure of this matter.
Insurers may be able to refuse to pay a claim or part of a claim under an insurance policy if the policyholder has not complied with their duty of disclosure under certain circumstances, and then non-disclosure has prejudice the insurer. See below for a duty of disclosure statement:
Matters that may require Disclosure
An example of such matters that relate to typical strata insurance disclosure matters include;
What claims have you made in the last 5 years?
Claims
Commercial tenants occupation is required to be disclosed with new business and every renewal as this can affect the risk.
Commercial Tenancy
Whilst commonly it might be concrete, brick, wood or other, building cladding is now very topical. The existence of any cladding of whatsoever nature should be disclosed as part of your building construction description. Non-compliant cladding is an issue for insurers, due to fire safety aspects
Construction of your building
Usually, building reports will highlight potential maintenance issues.
Mainly for older buildings, an example is a wiring condition report that illustrates you have an issue with electrical wiring in the building.
Roof report that states the roof timber beams have rotted.
Concrete cancer on balconies
Any matter that highlights adverse matters about your building could be considered a defect to be disclosed.
Building condition reports
A Defect can arise in many ways, such as;
Design – poor design can lead to issues
Materials used – example is non-compliant cladding – the cladding used safely is okay, but not used correctly can cause major fire hazards. Other materials and products may actually be cheap and not perform well on the building
Workmanship – poor building techniques and lack of experienced tradesman
Serious lack of maintenance that leads to a defect
Defects that are known
Such as earth movement of movement of foundations, leading to cracks in walls etc.
Structural
Typical disclosure questions shown on applications include:
Is the Strata Community aware of any building defects?
Has an insurer declined an application or refused to renew a policy for the Strata Community?
Has an insurer imposed special terms or conditions to the Strata Community insurance?
Has an insurer declined or refused any claims?
Attach the claims history to this quote (Up to 5 years)?
Any other questions that are asked, must be answered, whether they are an application or not, but must be in writing?
*Note not are all matters that relate to disclosure are asked as questions within an application.
Your Duty of Disclosure
Before you enter into a contract of general insurance, you have a duty, under the Insurance Contracts Act 1984, to disclose every matter that you know or could be reasonably expected to know, is relevant to the underwriters’ decision whether to accept the risk of insurance and if so, on what terms. You have the same duty to disclose those matters before you renew, extend, vary or reinstate a contract of general insurance.
Your duty, however, does not require disclosure of a matter
- that diminishes the risk to be undertaken;
- that is of common knowledge;
- that the underwriters know or, in the ordinary course of business, ought to know;
- as to which compliance with your duty is waived by the underwriters.
Non-Disclosure
If you fail to comply with your duty of disclosure, the underwriters may be entitled to reduce their liability under the contract in respect of a claim or may cancel the contract. If your non-disclosure was fraudulent, the underwriters may also have the option of avoiding the contract from its beginning.
N.B. The disclosure required is especially important in matters relating to the physical risk, past claims, declined cover at renewal leading to a cancelled policy, the imposition of increased premiums and application of higher excesses etc. and any matters that might affect the acceptance of the risk such as insolvency or criminal convictions.
Are you insured for a catastrophe?
Catastrophe insurance can be a little misunderstood when it comes to strata insurance. In this short article, I will explain this type of insurance and how it works.
When you insure your strata property, the first section of this policy is known as Insured Property or Property Loss or Damage, or similar in most strata insurance policies. Strata Titles Act 1985 WA (STA) s97 Required Insurance, outlines how you must insure your Property, referred in the STA as Insurable Assets of your strata for replacement value. If you refer to this section of the STA it describes replacement value.
When you insure for replacement value as required by the STA it also requires the strata to insure against many event perils. Many insured event perils are such things as fire, storm and earthquake and, whilst these type of events are already covered by the first section of a strata policy, these events can also be incurred in a declared catastrophe event. So whether the event leads to a catastrophe or not they are insurable events and in all cases you need to insure your property for replacement value.
For Catastrophe insurance to be activated two things must occur;
The Catastrophe must be a declared event by the Insurance Council of Australia and a code will be issued and used by all the insurers e.g. recent 2021 Wooroloo Bushfire; Newcastle Earthquake; Perth Hail Storm March 2010; and
The Insured Assets (Building and Common Contents) sum insured under the Insured Property is insufficient to rebuild the property, due to escalation of costs increasing as a result of the catastrophe.
As suggested above, catastrophe insurance provides protection for the strata against the Insurable Assets being not insured for replacement value, due to the escalation costs in rebuilding. The difference in replacement value is caused by a demand surge due to a lack of available resources and/or products in the market e.g. bricks; tradesman.
In addition, the cost of finding temporary accommodation for Lot Owner’s also increases in these times of need and catastrophe insurance responds to additional benefit limits for the increased costs in accommodation.
Overall escalation costs following for such events increase the normal replacement cost in the average by approximately 30%, as reflected in catastrophic claims sustained by the insurance industry over many years. Remember catastrophe insurance is not a top up against underinsuring or incorrect valuations or government charges, such as GST, where short falls may occur.
Catastrophe insurance is important to have as it helps your strata to comply with the requirements of the STA by ensuring that even in the event of a declared catastrophe that the Strata Insurable Assets are insured for replacement value as the STA requires.
https://www.legislation.wa.gov.au/legislation/statutes.nsf/main_mrtitle_938_homepage.html
Preparing for your items of business at your next AGM after proclamation
Strata Titles Amendments Act 2018
As we embrace the new Act commencing 1st May 2020, it will require changes and additions to the way things have been done in the past. This includes documentation for the next AGM, in particular insurance documentation.
Under Section 127 (3) (c) it states:
(c) The presentation of copies of certificates and schedules for the insurance required under this Act, current as at the date of the meeting.
Previously the strata market typically only provided a certificate of currency or other insurance documentation as the Act at that time did not specify exactly what was required. This has been changed in the new Act, which now states that you must include copies of certain documents for presentation regarding the insurance.
So what are these documents that you must include with your AGM notice of meetings?
The new Act now requires you to include the Insurance Policy Renewal Schedule and your Brokers Insurance Certificate, if you use a broker. You can also include a Certificate of Currency, but you need to ensure the certificate used is current for the AGM meeting.
A Policy Schedule is also known as a Schedule of Insurance for most insurers and in some instances this document is referenced for renewals only as a Renewal Certificate, but effectively is the same thing. Depending on whether it is New Business, it is generally called an ‘Insurance New Business Schedule’ or if it is a Renewal, it is generally called an ‘Insurance Policy Renewal Schedule’ or a ‘Renewal Certificate’. These documents are part of the insurance contract, which identifies the insured, details of coverage summary, any special conditions, excesses and the premium summary breakdown.
A Broker Insurance Certificate, typically summarises coverages, excesses and any conditions applying, along with expiry dates. The purpose of this document is to show that cover has been placed and paid.
A Certificate of Currency is a document that confirms an insurance policy is current and identifies the summary coverage & expiry date. It does not show excesses, premiums or any special conditions. The information is only current at the time and day of your request. This document is typically used for property settlements and for lending purposes.
Reference: Strata Titles Amendments Act 2018
3 Ways to Minimise the Risks of Property Defects
You have property and strata insurance sorted. So if anything goes wrong you’re covered, right? Not necessarily.
If your property has a defect and damage occurs as a result of that defect you may not be covered. You also may be liable for damage associated with that defect.
But what exactly is a defect and how can you cover yourself from unexpected costs?
What are property defects?
A property defect is a problem with your building that increases the risk of major damage. A defect within a new building is usually a failure to comply with the National Construction Code, whether through defective materials, faulty design, or poor workmanship.
A defect in an older building may be caused by inadequate maintenance leading to a major maintenance defect, e.g. root rot. Normal wear and tear should be part of your strata’s on-going maintenance and preventative efforts.
Examples of common defects include;
Rusting Garage Poles: Weak garage poles are in danger of collapsing, which could damage your car or affect the structure of surrounding buildings.
Damaged Roofing: Whether your building has cracked tiles or blocked gutters, roof defects increase the risk of a ceiling collapse.
Rotting Structures: Does your property have elements of timber? Rotting timber or other woods could have major implications for your building’s structure.
The Responsibility of Strata
As a strata manager or strata committee member, it’s your responsibility to know about the state of your common property. It’s also your responsibility to notify your insurers of any property defects.
As part of The Strata Titles Act 1985 s35 and the Strata Titles Amendment Act 2018 (STAA 2018) s91:
A Strata company must;
(b) Control and manage the common property for the benefit of all the owners of lots; and
(c) Keep in good and serviceable repair, properly maintain and, if necessary, renew and replace etc.
3 Ways to Minimise the Risks of Defects
1. Obtain A Building Maintenance Report
The best way to minimise the risks associated with damage is to know your building. We advise those responsible for managing the common property to get a Building Maintenance Report, rather than attempting this themselves. These reports are usually conducted by WA Registered Builders and specialists, and outline maintenance issues that need to be addressed immediately and issues that may arise in the future.
2. Advise your insurer
If your Building Maintenance Report uncovers defects it’s best to notify your insurer.
Although we can’t predict what actions your insurer will take, letting them know about the defects and being insured for them is better than not being covered at all. If damage occurs as a result of known defects, you may be ineligible to make a claim and liable to pay for repairs.
3. Implement your Maintenance Plan
So you’ve got your report. You’re in the clear. Not so fast! It’s now time to adopt a Building Maintenance Plan to address defects found in the report. It’s a good idea to request a plan that is risk-rated so each defect item can be scheduled for a particular year. These can be reviewed in strata meetings and be included in the strata budget. Not sure how to do this? Get a specialist to help you.
The Benefits of a Maintenance Plan
Insurers want to work with you, not against you. Putting a Maintenance Plan in place means you’re likely to get a better insurance deal because you’re lowering the risk of claims in the future. Maintenance Plans reduce the risk of injury, unexpected costs and liabilities.
Need help with your strata insurance? Talk to the strata specialists.
3 Ways to Reduce Your Strata Insurance Premium
You’re looking for strata insurance and notice a big jump in the price of premiums. It’s another blow to your budget and adds to the frustration of finding the right insurance.
It’s a popular misconception that insurance companies increase the price of premiums just to fill their back pockets. But in reality, premiums are often out of the control of both the insured and the insurer.
Why are premiums rising?
Insurance premiums may go up and down according to the hardening or softening of the market, often referred to as the “Strata Insurance Rate Cycle”.
Like any market, rates are affected by several factors, such as the economy (inflation), insurance competition, natural disasters and regulatory changes.
Between 2014 and 2018, the insurance rate cycle was softening with premiums reducing up to 50%. But then recurring claims and catastrophe claims increased so stata premiums were on the rise again.
Despite of the rate cycle premiums are subjected to, there are ways you can reduce your premium.
3 Ways to Reduce Your Premium
1. Avoid making small claims
More claims = higher premium. If you’ve made several claims over the last three years, your premiums are likely to increase, as well as your excess. How to remedy this? We recommend avoiding claiming for small maintenance issues and planning for regular maintenance in your annual budget instead.
2. Keep up with maintenance
Insurers know most strata insurance claims are a result of poor maintenance. Make your building attractive to insurers by maintaining it. Show them you have a proactive strata company and Council of Owners, all contributing towards on-going maintenance. Create a maintenance plan so you have a list of actionables to deliver.
3. Mitigate Risks
Mitigating the risk of your building decreases the likelihood of an emergency and reason to claim. We recommend employing a building risk surveyor to provide a risk management plan you can implement. This, along with your ongoing maintenance, may reduce your premium over time.
There are many factors that contribute to strata insurance premiums and the excess you pay. But whatever is happening in the insurance market, a well-maintained building increases the likelihood of a lower premium.
Need help finding the right strata insurance? We guide you through the process with insightful, easy-to-read comparisons that go far beyond dollars and cents.
Top tips to keep your home safe this Christmas
It’s the most wonderful time of the year, so let’s keep it that way!
Nothing would ruin your holiday break more than returning home to find a break-in or water damage. And who wants to start the New Year buried in insurance claims?!
So, before you fully switch off and enjoy some much-needed relaxation, take a look through our top tips to ensure you have a safe and happy Christmas.
Check your Christmas lights
Before you pop your Christmas lights up, make sure you give them a thorough once-over to check for any excessive dust or loose cables. Remember, these lights are typically in in the cupboard for 11 months of the year and excessive storage can sometimes cause damage. It’s always best to check before you plug them in. Make sure the lights also meet the current Australian Standards and avoid overloading one single power board.
Decorating your tree? Lights can certainly add some festive sparkle, but be careful! Lights on trees can become hot so ensure you don’t install them near any flammable items like paper decorations. Then, play it safe when you’re not home and unplug all lights. Read more here for more tips on keeping your tree safe.
Make your home look occupied while on holidays
Heading away this festive season? Great! But remember, empty houses can become a target for the opportunistic so it’s important to make it seem like someone is home. Prepare a plan so while you enjoy yourself with the family and gorge on Christmas ham, you can rest easy knowing your home is safe.
Before you go, enlist a trusted neighbour, friend or family member to help with some easy tricks; they can collect your mail, mow the lawn and bring your bins in and out. Plus with today’s technology, Smart lights are a great way to automate your lighting to mimic your daily habits.
And before you post your #HolidaySnaps, check the privacy settings are updated on all social media accounts. You don’t want the wrong person to realize your house is empty while you’re making sandcastles on the beach!
Update your home insurance and make an inventory of belongings
Take photos, file all receipts and update your insurance prior to going away, just in case! Sometimes, we can be fully prepared but the worst can still happen. One of the most common issues that can arise when making an insurance claim is being unable to provide proof of loss. If you find yourself in the unfortunate situation where you need to make a claim, it’s very helpful to have current valuation certificates, photos of items, or even an inventory list for the house.
Plus, don’t forget to read up on your insurance policy on unoccupied houses. Some policies require notification of the home being vacant for extended periods, usually 30, 60 or 90 days.
Secure all your tools and belongings in the yard or garage
Make breaking into your home hard! Tools laying around the yard or in an insecure garden shed make it that little bit easier for a person to enter your home. Avoid leaving equipment in easy access areas and ensure your garden shed is locked up. It’s even worth investing in a padlock to make it that little bit more difficult and unappealing for someone to break in.
Leaving a car behind? Make sure it’s completely empty of all belongings, that includes sunglasses, spare change and even any charging cords. If the seats and floor are completely clean, an opportunistic thief is less likely to want to break into it searching for valuable items.
If you have an automated garage, make sure it’s completely secure and even consider turning off the power supply so it can’t be opened by a universal remote.
Lock those windows and doors
Before you head out, make sure you check every window and door in the house. It’s common for criminals to enter through open or unsecured doors or windows – and a break-in would certainly ruin your holidays! If you can, it’s a good time to install deadlocks on doors and security screens on windows. Placing a wooden rod in the track of sliding windows or doors can make it even harder for these points to be opened from outside.
Then, keep your blinds and curtains closed and place all valuables out of sight. The less temptation for a passer-by the better!
Give your utilities a break
It is always a good idea to unplug any electrical items before going away for the holiday break. Unplug and check your straightener, iron, toaster – the whole lot!
Not only does it help save on unnecessary power usage, but it protects your appliances from any power surges that may happen.
Then, turn off your water at the mains. This will ensure you don’t return to find any pesky water damage!
Do you still have Asbestos in your building?
Asbestos is a banned building product that can no longer be used, despite this, it still exists in many buildings today. The product was banned from 31st December 2003.
All uses of asbestos were banned from 1st January 2004, except for existing asbestos material already in place known Asbestos Containing Material (ACM) and provided it was used in the same way prior to this date. Also that handling and disposal management applied to the existing material.
Only specially trained and qualified contractors should be handling ACM as repairs to ACM are not permitted. ACM that has been satisfactorily maintained and monitored can remain. There is a requirement at law to have an asbestos register at the building and any trades that are invited to the building to carry out repairs should be advised of its presence and location so that they may be informed of the location of any asbestos materials.
When any trades carry out work on anything that is ACM there are special guidelines on Work safe requirements so that work can be performed safely. A register of ACM and associated risk assessments must be reviewed at least every three years as referenced in the website under Dept. of Mines, Industry Regulation and Safety.
Asbestos & Insurance Effects
You should make insurers aware if you know ACM is a product used in or on the building, such as the roof. This information is important to the insurer for many reasons such as;
• The presence of ACM increases costs in replacement, due to increased costs for removal of debris & handling in the event of a claim
• Any claim at site may increase the cost of temporary accommodation & loss of rent, due to contamination risks following a claim
• Extra costly repairs, as handling ACM requires specialist trades, who are experienced in handling asbestos
• Work, health and safety - Increased compliance on the Council of Owners, to ensure they’re following the rules required for Asbestos Management
Many strata insurers will not insure buildings that contain ACM, such as rooves and the limited insurers who will charge a much higher premium, for many underwriting reasons including those stated above. Any acceptance for insuring property with ACM will depend, first and foremost on how well it is maintained.
The Strata Titles Act Reform
With new strata reforms just around the corner a 10-year maintenance plan is a new requirement for designated strata company’s which is;
Any scheme with a replacement value of $5,000,000 or more
All schemes 10 Lots or more
Strata Amendments Act 2018 [STAA 2018 s100 (2A)(a)(b)] & draft Strata Regulations S78(1)(a)&(b)
Further defined in the draft Strata Regulations S76 (1) (a-h), condition report and the method of estimate costs for maintenance are required. As an example, these new requirements would be relevant to designated strata buildings with an asbestos roof.
Reference & source of information https://strata.wa.gov.au/document-library | https://strata.wa.gov.au/ | https://www.commerce.wa.gov.au/worksafe/asbestos-frequently-asked-questions | www.worksafe.wa.gov.au Legislation | National code of practice for management and control of asbestos in workplaces [NOHSC: 2018] Safe removal of asbestos. 2nd edition. [NOHSC: 2002]
Cyber & Social Engineering Insurance – It is a growing area of risk
The law today states all companies have a responsibility to ensure that their client’s information is safe from harm’s way. Your company may be held liable for any loss of client data or any resultant losses to third parties. The problem for all of us, it is a moving target when it comes to technology and keeping up with how to protect your company’s data.
These days most of our information is stored on-line in some capacity in our website or electronic records and the ability for hackers to enter our systems is getting easier as hackers are getting more sophisticated and clever in how they manipulate their way into our working and personal lives.
It creates destruction and devastation to those who are affected, you, your business and your clients, especially if a financial impact occurs or black mail results from the hack e.g. phishing. viruses, malware.
Minimising your Cyber risk to your business
It is important that cyber insurance becomes part of your ordinary business insurance requirements. As a strata manager, you store a lot of information and not having cyber insurance to protect losses and costs associated with any cyber-attack, breach, extortion or financial impact would be disruptive to your business and you could attract a fine as the law has been broken and in some cases bankrupt the business.
Having cyber insurance is a risk management tool, however it is equally important to ensure that your IT security systems and software are up to date.
Good reasons to consider this cover
By having, a Cyber insurance policy in place provides you with protection against losses and the associated loss of reputation, financial loss but also assists, in making sure your Company survives a hack.
Voluntary Work for your Strata Company
Did you know that when you volunteer your personal service with your Strata Company, you can be covered for the voluntary work undertaken should you be injured? However, the benefits available to volunteers via this cover is limited, including age restrictions (as an example).
It is important to make a distinction between cover provided by Workers Compensation insurance versus Voluntary Workers insurance.
Workers Compensation Insurance covers those who are deemed workers that are paid for their services, in kind or some other remuneration.
Voluntary Workers Insurance covers those who perform work solely on voluntary basis without reward for their services.
Workers Compensation, like Strata Titles, the insurance is governed by an Act and therefore both are statutory forms of insurance. Voluntary Workers insurance is found in strata insurance, but the requirements for this type of insurance differs around Australia and whilst not mandatory in WA, it is a standard inclusion of a strata insurance policy.
Primarily voluntary workers are covered for the insured events (i.e. Death; Total Loss of a hand eye, foot etc.), loss of income where employed and receiving wages or salaries, domestic assistance, travel expenses, home tutorial expenses, subject to the limitations, excess, terms and conditions of the policy.
Case study – Spring Cleaning Busy Bee
A Strata Company decides to have a busy bee on common area gardens during the warmer spring cleaning months. None of the residents will be paid for their service. As the work involved is only voluntary gardening, rather than contract work, the owners are able to save money towards painting the complex at a later stage by arranging the busy bee. A question is raised at the AGM, are residents covered for an injury from an accident when volunteering for the Strata Company?
Yes, this is an example of voluntary work and would fall under the coverage provisions provided by Voluntary Workers insurance. It is always best to review your coverage and know what you are covered for, as age and cover is restricted. Knowing what you are covered for is one of many important aspects before deciding to perform voluntary work.