Strata insurance explained

Insurance premiums are a major component of your strata levies. Although premiums have been rising along with other types of insurance, the cost still compares favourably to insuring a freestanding house when divided up amongst owners through levies.

Why do we need insurance

Your owners corporation has a legal obligation to maintain insurance that covers the replacement cost of the building and any associated liability arising from any activity or incident on common property. This protects individual owners in the case of a major fire or other disasters insured under the policy. Public liability insurance is also a compulsory cover and protects the owners corporation from losses arising from personal injury claims.

Voluntary workers cover and in some cases workers compensation are also compulsory in NSW.

Rising costs

Insurance costs have been rising in recent years due to several factors – more frequent and more destructive natural disasters, the rising cost of repairs and a reduced risk appetite among insurers globally. For some strata owners, this has been compounded by factors specific to their scheme such as a poor claims history, unresolved defects claims, the presence of banned aluminium composite panelling (ACP) and fire system rectification orders.

What’s included in premiums

Your total insurance premium will include these components:

Risk premium: This is the amount retained by the insurer to cover potential claims under the policy. It is based on a wide range of metrics that influence potential claims costs, including the size, age, construction type, facilities, location, claims history and other risk factors such as defects.

Emergency Services Levy: A funding contribution to services including NSW Fire and Rescue, the Rural Fire Service, State Emergency service and other first responders. Rates vary between 13%-16% for residential strata and 22%-28% for commercial strata.

Stamp duty: Most insurance policies in NSW attract 9% stamp duty.

GST: Goods and services Tax is applicable to Insurance Policies.

Commissions and fees: Strata insurance is a specialised product, and every scheme is different. These charges cover the services involved in finding suitable cover, negotiating premium rates, providing insurance advice, and managing claims by your broker and/or strata manager. The rates and structure will depend on the arrangements for your building.

FAQs

Does strata insurance cover the contents of my property?

No. Strata insurance covers the building, including internal structural elements of units, but the contents are an individual responsibility. That said, if damage to your contents are caused by a common property problem such as a water leak then it may be covered by the strata policy. 

How do we reduce our premiums?

The best way to keep premiums down is through good maintenance and eliminating any risks or hazards that might lead to insurance claims.

How can we be sure we are receiving the best rate for our insurance?

Your broker and strata manager are responsible for finding the best insurance cover for your property. This may not always be the cheapest as different insurers offer different types of cover. Some insurers do not cover all types of buildings and exclude some types of risk factors such as defects so it can be difficult to find competitive prices in those instances.

How do we assess the replacement cost for insurance purposes?

Building costs change so owners corporations are required to obtain an updated estimate of all costs associated with replacing the building. There is a legal obligation to ensure the building is insured for replacement value every renewal. It is recommended a professional valuer be appointed to carry out a valuation which will ensure the owners are not left short in the event of a major claim.

What happens if our building is not insured?

Every owner is potentially exposed to the cost of any claim against the owners corporation. It will also be difficult to sell any property because banks will not lend on uninsured properties.

Please note that this is general advice only. Speak to your Strata Plus manager about the specific insurance requirements of your building.

Read about owners corporation strata insurance obligations.