In Australia, strata insurance is mandatory for nearly all strata buildings, so the risk of being uninsured is low. However, underinsurance—where the insured sum is insufficient to cover the full cost of rebuilding or repair—has become a growing concern for strata property owners.
Understanding Underinsurance
Over the past five years, underinsurance has emerged as a significant risk for strata properties across Australia. It occurs when the sum insured does not adequately cover the true cost of rebuilding, leaving properties vulnerable during major loss events. Most Australian states recommend building valuations every five years, but given current market conditions—including rising inflation and rebuilding costs—it’s crucial to ensure that your ‘sum insured’ accurately reflects the actual cost of rebuilding in case of a disaster.
Common Causes of Underinsurance:
Outdated Valuations: If your sum insured isn’t updated regularly based on a current valuation, it may not cover the actual replacement costs.
Rising Construction Costs: Increased costs of building materials, labour shortages and supply chain issues have significantly driven up repair and rebuilding expenses. In recent years, we’ve seen construction costs steadily rise, influenced by inflationary pressures and market dynamics.
Additional Costs: Beyond basic repair costs, other expenses like professional fees, regulatory compliance, council and government costs, demolition and debris removal can quickly add up.
Steps to Avoid Underinsurance for Strata Property Owners
Review Your Sum Insured Annually: Regularly review the building’s sum insured amount and consider accepting your insurer’s suggested indexation to keep up with increasing building and repair costs.
Obtain Regular Valuations: Get a professional valuation of your building every 2-3 years to ensure that your insurance covers its full replacement cost.
Maintain Your Building: Address maintenance issues promptly. A well-maintained building is less likely to suffer extensive damage, potentially reducing insurance claims.
Account for Additional Costs: Make sure your insurance policy covers not just the cost of rebuilding but also additional expenses such as debris removal, professional fees, taxes and cost escalations during the rebuild process.
If your property hasn’t been valued in the past 24 months, there’s a high chance that the sum insured may be insufficient, potentially leaving strata property owners financially exposed in the event of a loss.
Stay Protected
To ensure you have the right level of cover for your strata property, contact your strata manager, strata, insurance broker or insurer. They can help assess your current coverage and make recommendations to mitigate the risk of underinsurance.
Contact CHU for more information
