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As a strata committee member, we recently went through the strata insurance renewal process.
The proposed quote comes back with 50% and above increase to premium, primarily due to the increase in sum assured.
As a committee, we felt that it is not justified to have building sum assured increase by more than 50% over one year and went back for a lower sum assured quote (20% increase).
We got knocked back from the broker saying that insurer determine the building valuation hence does not accept quoting for a 20% increase in building sum assured. Full stop!
It appears that there is ‘moral hazard’ from broker and/or insurer to over-inflate the total sum assured for a higher premium. As OC, we got no choice but to go with unreasonably large increase in sum assure.
Is there anything we can do as a committee?
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Our owners corp gets an independent valuation done every 5-10 years and presents that to an insurer. I don’t recall the insurer ever rejecting the valuation. Between valuations, each year’s AGM resolves that the committee shall renew our insurance increasing the insured amount in line with the insurer’s recommendation. That recommendation is only ever a few % each year to reflect general increases in property value. After some years of just having % increases, we get another valuation done to ensure we have not drifted too far off course.
You could go to a different broker or directly insure with chu.
However, if you have an independent valuation then unless there is something defective with it then not insuring to the valuation would be foolish. You might want to check your office bearers cover as well. Under insuring has a some unexpected consequences.
Our insurance went up 50% this year without a significant increase in insured amount…
Our insurance went up considerably also. We use a broker and I rang and asked why. They said it was the cheapest they could get. They got us two other quotes but both were more expensive.
I don’t think it is right that an insurer determines the value of a building. Has the insurer done a valuation? mostly we just find they increase the previous years value by a %.
To my knowledge insurers usually don’t physically value a building except in the case of a large claim.
@Cosmo said:
Our insurance went up considerably also. We use a broker and I rang and asked why. They said it was the cheapest they could get. They got us two other quotes but both were more expensive.My experience over a decade of being on our committee plus observing a few years either side is that insurance costs go up over a few years, usually gradually but occasionally in a big jump, even using a broker. Then we would get a wind-fall of a sudden, substantial drop and then the cycle would repeat.
Perhaps every few years someone in the market decides to price competitively and the others follow, then for a few years they don’t compete.
I don’t think it is right that an insurer determines the value of a building. Has the insurer done a valuation? mostly we just find they increase the previous years value by a %…
Increasing the valuation by a few % each year in line with the insurer’s recommendation is a reasonable thing to do if the start point was an independent valuation and that valuation was not to many years earlier.
We are working on a transparent insurance online quoting tool. The idea is that with a single online form you can get 3 insurance quotes with the same parameters (options, amounts, excesses etc…) and access directly the insurer’s quotes, not just a digest prepared by the broker.
I’d love to get your input. Feel free to get in touch if you would like to trial it!
Unless the block is substantially made of flammable products or a similar identifiable risk being forced to insure for full value or so called replacement value is similar to being forced to bet on picking first, second and third on a race day i.e. you would only collect on full value if the entire block is destroyed. Perhaps a fire in one unit plus water damage plus the roof being blown off may add up but to nowhere near full value. “Replacement cost” involves a gamble that if the whole block built in say 1963 is destroyed then the owners win a motza i.e. a brand new block; imagine insuring your 1960 car such that you get a current model if (and only if) it is destroyed or stolen; insurance companies wouldn’t allow it without a huge premium as in this case they would be taking the gamble with a fragile and easily stolen item.
This is the context in which the further absurdity of having to pay a substantial amount every few years for a valuation is no longer compulsory. It only makes sense if the insurance co. seems to increasing their valuation well beyond what appears likely value and it is a newish block.
Dech
There is a concept in insurance called coinsurance.
Basically it says that if you take out insurance that for less than the full event insurance value, the insurance company says you are co insuring. Ie you are taking on part of the insurance risk yourself.
So lets say your OC insures your block for only 50% of its full value, believeing that the chance ofa total building loss is 50%.
Lets say that your lot burns to the ground, but no other log is affected. The insurance company will say you coinsured the event to the tune of 50%, so even though the total sum insured is greater than the loss of your jnit, wwill only pay 50% of the assesed loss.Nloss.
Now do you want only 50% of yourlot yo be rebuilt?
The point of tne valuation everh few years is to ensure that the inrured value of your building is close to uts real replacement cost. ( the insurance companies allow some lee way in the sume insured before applying the coinsured rule)
Spellcheck? Please?
The opinions offered in these Forum posts and replies are not intended to be taken as legal advice. Readers with serious issues should consult experienced strata lawyers.
I think that the Act defines the level of cover which has to be provided, based on a worse case scenario where the building requires complete rebuilding back to its original condition. In an older building, a minor incident in one lot could well affect the integrity of the whole building. Increases in sum assured would be based on increases in the cost of doing such work, not on the market value of the property.
In the ACT, s.100 of our act says:
“1) An owners corporation for a units plan must insure and keep insured all buildings on the land for their replacement value from time to time against all of the following risks: …
2) The owners corporation must take out an insurance policy that covers, to the greatest practicable extent…”
The first bit has a long and comprehensive list of risks and it is clearly the ‘replacement value’ that must be insured. The next bit recognises that it is not possible to find an insurance product that is utterly comprehensive if for no other reason than that they all have some excess to be paid on a claim. The consequence is that Tribunal decisions have made it clear that the OC has to pay the excess on a claim since insurance products without an excess do not exist.
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