04 Jul What is strata insurance and how does it work?
If you own an apartment, townhouse or villa, or a commercial space such as an office or retail space in a building, generally that building would be insured under a strata insurance policy. But what is strata insurance and do you need it?
Strata insurance is structured to protect common contents and property under a strata title or body corporate entity. Notably, there are some key distinctions between this legally-required cover in comparison to building insurance and contents insurance, so you need to know the difference.
Our team of experienced brokers can help break down the confusion, myths and mistakes of strata insurance and help the body corporate make informed and transparent decisions regarding the costs, the requirements surrounding sums insured, excesses and more.
Read on to learn what strata insurance is and whether it applies to your property.
What is strata insurance?
Strata insurance is a specific policy with wordings and conditions relatable only to this type of property ownership. Strata insurance covers the building in its entirety but excludes any contents, fixtures or fittings that have been installed by the unit owner. The strata insurance will cover the property as it stands at the time of registration of each strata.
It also covers insurances under the one policy for legal liability, loss of rent due to an insured event claim, machinery such as air conditioning, lift and escalator plant motors, basement pumps etc., directors and officers of the executive committee and other sections as required.
The cost of a premium for strata insurance is usually shared between unit owners under general strata fees.
Is strata insurance a legal requirement?
Yes. Strata insurance is a legal requirement for properties with a strata title, and as such can include strata, stratum, and community or neighbourhood associations.
Crucially, the legislation surrounding strata insurance varies by the state or territory. It is your body corporate’s duty to research the cover required under local laws and ensure that the policy is satisfactory.
What does strata insurance cover at the time the Strata is Registered?
Strata insurance covers the common property owned by a body corporate in the event of loss or damage. This property may be inside one building, at a complex or on a shared plot of land – what matters is that it is defined in the strata title.
Examples of eligible common property include recreational facilities such as a pool, tennis court, gymnasium, entry foyers, garages, infrastructure etc.
From a unit owner’s perspective, it is crucially important to establish what an owner of a lot within a strata needs to insure over and above the strata cover. These would be things such as floating floors, bathroom or kitchen upgrades or even paint on the walls. It is best to consult the strata insurance broker to ascertain what your particular strata policy covers.
Under the Strata Schemes Management Act 2015, strata properties must also be covered against public liability claims for third-party injuries in common areas. It is important that strata unit owners obtain advice as to whether they require separate public liability for their own lot within the strata as the strata liability will cease at the ‘front door’ of the lot.
What is NOT covered by a strata insurance policy?
As a general rule of thumb, strata insurance cover ceases on each lot owner’s doorstep. In other words, it does not include privately-owned property such as the personal items of individual residents.
Assets that are not covered by strata insurance range from internal fit-outs installed post strata registration, fixtures, fittings and flooring to furniture, appliances, and jewellery within each dwelling and any alterations made by the current or previous lot owner.
Moreover, additional exclusions may be listed under your particular policy. For example, if your strata scheme is located in a flood-prone region, coverage may exclude flood damage.
A note for landlords: strata insurance does not offer coverage against theft or interior damage by tenants, legal fees incurred from tenancy-related court cases, or loss of rent if a tenant fails to pay. For these protections, you must take out landlord insurance.
Does strata cover building insurance?
Building insurance is a type of policy that covers the physical structure of a property and certain contents within it. Such a policy typically applies to individual residences, like a free-standing house.
Generally, owners of strata units do not need to have their own building insurance because the cover it offers is already provided for under a strata insurance policy.
Do I need contents insurance if I have strata insurance?
Yes. Unlike strata insurance, contents insurance covers personal belongings inside the unit that are not attached to the property.
As a resident owner, you should take out a contents insurance policy in case items that are not included within the strata registration are damaged or stolen.
Examples of such contents include clothing, furniture, fittings and any home modifications you have paid for, including new kitchen appliances, additional bathroom fixtures and built-in wardrobes. In many strata policies, as strange as it is, the paint on the walls in a lot is the responsibility of the lot owner, not the strata.
As always, it’s important to confirm exactly what is and is not covered by your strata insurance with the body corporate. That way, you can take out a contents insurance policy to fill in the gaps.
Who manages strata insurance?
In many cases, the strata manager will handle the strata insurance policy on behalf of unit owners. However, they’re not always the one who has arranged the strata insurance. This is where the strata waters become murky.
As insurance brokers are industry professionals it would be prudent to have a licensed insurance broker administer the strata insurance as they are the ones with the knowledge and better equipped to serve the strata committee.
It is strongly advised that the body corporate organises a valuation of the strata property every few years to ensure it has sufficient cover. This valuation should align with yearly insurance policy reviews.
Strata insurance fees explained
Strata insurance is paid for from the strata fund finances and the insurance renewals are paid by the strata manager to the insurer or broker. There are, however, many cases where the strata insurance is obtained by the strata manager via an insurance broker with which they may have a formal or informal financial arrangement.
There is a growing concern throughout the sector that relationships between the strata manager and the insurance broker are not absolutely and fully disclosed to the executive committee. So, in some cases, the EC may be paying fees to two parties who are doing the same job, thus loading the strata insurance premium for no real reason other than ‘clipping the ticket’ for some income.
At Ian Jones Insurance Brokers, strata insurance is arranged on a flat fee basis with the actual strata insurance premium and the fees separated for absolute financial transparency. No fees are ever paid to strata managers or other parties.
We charge a flat 7.5% plus GST on all strata premiums and do not receive any other income or commissions for the transaction.
What factors influence the price of a strata insurance premium?
Every insurance provider creates a unique policy in line with its underwriting practices and guidelines.
When determining the price of your strata insurance premium, they will consider various factors including:
- The age, design and condition of buildings in the strata scheme;
- The building’s applications and whether commercial activities are being performed. For example, short-term holiday rentals may cost more to insure than long-term tenancies;
- The risk profile of your location, with greater susceptibility to damage equalling a higher premium;
- The amount of excess that the body corporate has chosen to pay upon making a claim;
- The strata scheme’s insurance claims history;
- Insurance premium taxes such as emergency services levy, stamp duty and GST; and
- The state of the insurance market at the time.
Secure the right strata insurance policy with Ian Jones Insurance Brokers
Most insurers only offer strata insurances to licensed insurance brokers, which makes it difficult for body corporates to find adequate cover alone. The strata insurance market in 2022/23 has been quite unstable with regard to what properties pose acceptable risks.
For example, some insurers tend to keep away from newer buildings due to increased claims resulting from defects in the building process. Although the defects are the problem of the strata builder, such defects can cause resultant damage which would then be claimable under the strata insurance, resulting in claims higher than may be anticipated. Other strata may have unacceptable building cladding which can pose a fire risk (as we saw in the UK’s Grenfell Tower fire in 2017 which destroyed the building and killed 72 people).
At Ian Jones Insurance Brokers, we understand the strengths and weaknesses of each insurer’s policies and the protections provided to unit owners. From small duplexes to large commercial and industrial complexes, we will help you to find the most suitable policy for your strata scheme.
Equipped with invaluable experience and knowledge, our strata account brokers can address the body corporate to explain why we have selected a certain insurer.
We transact business with each and every strata insurer and obtain comparison quotes on each renewal from all strata insurers for presentation to the executive committee. We make clear and strong recommendations to the committee on the chosen insurer and ensure that coverage is completely understood by the committee.
When it comes time to make a claim, our professional claims team will guide the committee through the whole process and work closely with the strata manager to ensure a seamless approach to claims settlement.