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(i.e. loss of rent) commercial property impacts, and also Landlords Insurance, with rent default covers suddenly being withdrawn and policies rapidly re-written.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.
