January 2024 Market Update – Strata

The Strata Insurance Market remains consistent with our Market Update of July 2023: the market remains “difficult” with insurers seeking premium increases of around 10 per cent. Increases greater than 10 per cent should be expected where a property is subject to natural disaster risk (e.g. flood and bushfires), extreme weather events or other risk exposures.

In this update, we traverse two topics that are driving market trends and practices:

Claims costs: we have observed that some insurer appointed builders are exacerbating the scope and costs of remedial works.

Technology: platforms failing to deliver efficiencies.

Claim cost escalation: repairer misconduct and subsequent premium uplifts

Insurers have established panels of builders to assist with trade shortages, reduced remedial costs, expertise, timing efficiencies (to respond to disasters) and otherwise quality control for works sought to be undertaken. The builder will attend the site to complete make safe or remedial works in the event of a claim. They will also quote on repairs required to reinstate the property to its pre-loss condition.

The process is effective considering the repairers are vetted by the insurer and ordinarily the repairers are authorised to complete works to a significant value, without any requirement of a second quote. The intention is to streamline the quotation process so works may be completed quickly.

Instances have been brought to our attention of panel builders taking advantage of the process. It has developed that some approved repairers have been exacerbating damage suffered by policyholders to broaden the scope of remedial works. This practice places significant pressure on loss ratios, and as a result, uplifts in renewal premium and excess structures for policyholders.

Manipulation of insurer goodwill is not a new concept to the industry: culprits are ordinarily dealt with swiftly and consequences may include criminal sanction. Indeed this conduct does not attach to most repairers, but we report here that trending of instances are on the rise.

In a ‘soft market’ competition exists between insurers and coverage conditions are favourable to policyholders. Claims histories play less of a role in premium rating. In a ‘hard market’ (such as the present state for strata insurance) claims histories are a key consideration in assessing premium.

To ensure that claims costs and the scoping of remedial work is fair and reasonable, we suggest the following:

Seek consent to engage a local, trusted and suitably qualified repairer. Depending on the value of the works, there may be a requirement for two quotes to be presented to the insurer for approval.

Clearly articulate to the repairer the circumstances of the event and the resulting damage.

Engage with the repairers when they attend site.

When a quote and scope of works is presented, review the detail and ask any questions if you have concerns with what has been included or excluded.

Technology impacting transacting efficiencies

In our last market update, we reported that insurers continue to invest heavily in technology. Two strata underwriting agencies have recently started to transact on new operating systems. Our experience is that the systems function poorly and have caused delays: to the significant detriment of policyholders and their representatives.

Online systems were conceptualised to reduce transactional costs, ensure better user experience, aid collection and reporting of data and create efficiencies in claims management. Over time, shareholders intend to benefit due to reduced operational costs.

Strata renewal invitations are ordinarily provided 6-8 weeks before policy expiry date. These are now delayed by several weeks. Traditional communication (email and telephone) to press appropriate renewal turnaround times are futile. Notwithstanding, the time and resources being deployed to chase renewals significantly exceeds exertion of previous years.

The pivot to online systems has caused some agencies and insurers to be under-resourced: they cannot manage the volume of policies held and as a result fail to meet the expectations and requirements of policyholders and their representatives.

The lack of investment in training and development and human resources also has sounded with technical underwriting. A skill shortage exists to manage and underwrite some of the complex issues that have emerged across strata. By way of example building defects cladding and claims are just a few areas where this skill shortage is seen.

Toward the end of the first quarter of 2024, we expect that insurers’ service standards will have returned to previous levels, but we consider the lack in technical resourcing will continue to be problematic.

Our philosophy has always been early engagement with insurers to ensure optimal outcomes. This is more so relevant in the current market with the skill shortage. To enable this, we must work seamlessly with the Strata/Body Corporate Managers or the Committee, to ensure we understand the risk or exposure associated with our clients’ property and to obtain the relevant information and documentation that we know insurers require for their assessment.

We would also encourage clients to move away from choosing a policy based on premium alone, and taking into consideration those insurers that are best equipped to deal with problematic issues or claims when they arise. We recommend you contact your risk advisor when reviewing your insurance renewal for advice and guidance on which policy best suits your needs.