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
