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I DIDN’T REALISE THAT MY STRATA UNIT WAS ALREADY INSURED!

In Victoria when you purchased your unit you will have received an Owners Corporation Certificate in your Section 32 documentation. This provides all the current insurance details. If the owners corporation (or body corporate in the old language) is not professionally managed you should certainly enquire as to the status of insurance.
Unfortunately, all too often owners purchase their unit and immediately take out building insurance, only to discover that their unit is already comprehensively insured. Not only have they spent money unnecessarily, but have created a potentially dangerous ‘double-insurance’ situation.
The Owners Corporations Act (2006) requires that your strata takes out specialist strata insurance on all the buildings on the Plan of Subdivision. This insurance automatically includes a minimum of $20 million of Public Liability insurance over the common property, which includes the driveway (s).
This comprehensive insurance policy taken out with one specialist insurer ensures the safest and the most cost-effective insurance option. You should be aware that there are some obvious risks if duplicate insurance policies exist.

  • The potential for these insurance companies to dispute which company is liable, holding up repairs for a lengthy period.
  • The specialist policy will have replacement cover whilst the second policy may simply offer a payout, resulting in that owner having to arrange their own re-building.
  • A range of scenarios which can affect two units with a common wall where conflicting insurance policies result in dispute and difficulty.
  • Such scenarios are entirely unsatisfactory if the buildings are connected by common property, resulting in the buildings not being rebuilt at the same time, and disputes about who pays for the adjoining walls and services.
All of the above depend on the buildings being adequately insured. If any of the joined buildings are under-insured then the owners may not get their full pay out, meaning they can’t afford to rebuild.
If in doubt, you should contract a strata specialist for advice.
 

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The importance of Strata Insurance Valuations

Owners Corporations need to be asking themselves whether they have sufficient insurance in place to protect their strata building and property for when the unexpected happens.
 
The law
Under current Victorian strata legislation* an Owners Corporation must insure for its buildings full replacement value, and an independent insurance valuation of the building replacement cost must be completed at least every five years for a prescribed Owners Corporation. Building valuations for strata properties are not only required by law, but they also make good sense. It is a legal obligation and responsibility for an Owners Corporation to ensure that there is no dollar shortfall for the rebuilding of their strata property, should the worst happen. If there is a shortfall, then it is the responsibility of the Owners Corporation to meet this shortfall.
 
Changes in the law:
The long awaited regulatory reform of Victorian strata legislation has finally passed through Parliament and will come into effect on 1 December 2021.
Under the new legislation it will be a legal requirement for Owners Corporations of 3 lots and over to have a building valuation done at least every five years.  This is a big shift as the expiring legislation only stipulated this for “certain prescribed” Owners Corporations.
 
Why you need valuations
Apart from the legal requirements accurate valuations of assets ensures the correct sums insured are in place thereby avoiding the risk of underinsurance or conversely, unnecessary over insurance costs.
 
The level of insurance that is required tends to increase with time, as you put different materials, construction costs and professional fees increase each year, these factors must be altered in your coverage to reflect the changes and ensure the group remains adequately covered.
 
More recently fluctuations in the market for building materials and skilled trade’s people has seen many buildings currently underinsured. Therefore, a detailed valuation will account for more than just the replacement value, they will factor increased building costs due to CPI increases, natural events and other disasters.
 
Plus, in the event of a claim, having a professional insurance valuation can greatly simplify and streamline the claim process.
 
What does an Insurance Valuation cover?
A valuation of a strata building for a replacement cost assessment should include:

  • Cover the buildings, common property and each lot’s fixtures and improvements
  • Public liability insurance for the common property
  • Other factors including inflation, professional fees, cost escalations, compliance with regulations of building development at current standards, demolition, cost of external items (pavements, fencings, recreation facilities which are on-site) and lastly, the removal of debris.
 
Additional things to consider with an Insurance Valuation
Often, there’s a dangerous assumption that the valuation covers all scenarios but this is simply not the case. It’s worth checking that your instructions to a professional valuer are clear and complete and:
  • Covers the known and anticipates the undisclosed e.g. upgrades to fixtures and improvements for every lot within your strata block’
  • Considers any environmental hazards, planning/restrictions or dangerous materials which may prevent the building being rebuilt or delay the rebuilding process,
  • Anticipates the rise in costs of labour and materials – remembering that the rise in rebuilding costs outstrips the rise in CPI by almost double.
  • Allowances for cost escalation caused by floods, cyclones and other disasters
 
It is also important to note:
  • That a valuation is carried out frequently - every two to three years is a common practice among strata properties
  • Your Building Sum Insured amount is reviewed each year between valuations in light of events that could impact building and repair costs.
 
This article was supplied by CHU Underwriting Agencies
1300 361 263


*Owners Corporation Act 2006
 
CHU Underwriting Agencies Pty Ltd (ABN 18 001 580 070, AFS Licence No: 243261) acts under a binding authority as agent of the insurer QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFS Licence No: 239545). Terms, conditions, limits and exclusions apply to the products referred to above. Any advice in this article is general advice only and has been prepared without taking into account your objectives, financial situation or needs. Before making a decision to acquire any product(s) or to continue to hold any product we recommend that you consider whether it is appropriate for your circumstances and read the relevant Product Disclosure Statement which can be viewed on this website or obtained by contacting CHU directly.
 
Date issued: June 2020

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Can An Owner Take Out Their Own Strata Insurance?


20 Sep 2022

Can An Owner Take Out Their Own Strata Insurance?


All strata corporations, regardless of size, must obtain property and liability insurance as specified by the Strata Property Act. This includes strata-titled duplexes and bare land strata developments ("strata subdivisions"). There has been always a debate about what the issues are & what can be the solution for an owner in taking out their own strata insurance. Below is one of the issue along with a solution that usually an owner faces while opting for any strata insurance.


The issue As An Owner Taking Out Your Own Strata Building Insurance


An owner wants to take out a further policy in her name to cover the building and common property and quotes Consumer Affairs Victoria website which advises that owners CAN take out an additional policy in addition to the Owners Corporation policy.
 
The concern is that this advice may create potential insurance problems.


The Solution For An Owner Taking Out Your Own Strata Insurance


The CAV is correct of course, as both the Owners Corporation and individual owners can have additional insurance.
 
The Owners Corporation has a mechanism for this under Section 62 and the Owners are welcome to do what they please with their own property/lot.
 
However, “can they do this” is just one question.
 
The other two that any Owners Corporation or Owner should consider is:
  1. Should I do this?
  2. Will I be able to do this?
 
The requirements of the Owners Corporation Act do not change because of this, the Owners Corporation must still insure all structures for full reinstatement and replacement in the name of the Owners Corporation in accordance with the Act.
 
So, any insurance an owner would purchase on their own property would be above and beyond the normal Strata Insurance organised on behalf of the Owners Corporation.
 
Essentially the owner could be double insuring their property. And unless there is something unusual or a specific gap the owner is looking to close there isn’t any benefit from double insuring.
 
The owner will only be entitled to claim up to the building sum insured on any policy and wouldn’t receive a larger payout or claims payment for insuring above and beyond the Owners Corporation’s insurance.
 
Regarding their interest in the common property, this is handled via their membership in the Owners Corporation, from CHU’s perspective we would never place a policy on an Owners Corporation in the name of a single owner.
 
There have also been changes in the insurance landscape, specifically around ensuring that the policies insurers and underwriters sell are appropriate for the risks they cover.
 
Because of this there may be difficulties in the owner finding a policy that will cover a Strata property insurance, or even part of it, in their name solely.
 
What is most likely is finding a domestic home policy and placing that on the unit – which is typically what happens in these scenarios.
 
However again, this isn’t a replacement for the insurance that the Owners Corporation takes out, nor does it lessen the amount for which the Owners Corporation needs to insure the buildings.
 
So, the only effect would be for the owner to pay more for insurance for policy that is insuring something that’s already insured.
 
The reason either of these exceptions exist is for extraordinary circumstances, for example if there is something at the site or within the lot that’s not covered by the Strata Insurance and needs another policy to cover.
 
This provides the option for both the Owners and Owners Corporation having the ability to insure above and beyond the Owners Corporation’s policy they can purchase a policy to cover this item/risk.
 
In summary, any owner is welcome to purchase their own insurance if they choose, however the requirement for the Owners Corporation to insure for reinstatement and replacement is still there so the owner will need to consider if this extra cover is of any value to them.