July 2022 Market Update – Strata

Following our last strata market update, the Strata Insurance industry seems to be stabilising in some cases. However, the following factors remain at play:

Increased rates due to insurers rebuilding their premium pools as a result of large losses (Catastrophic Events).

Reduced capacity of larger risk due to claims increasing.

Risk appetite being reduced especially on certain risks (recent embargos as a result of the NSW/QLD weather events).

Cladding remedial works on hold due to COVID and recent weather events.

Developing issues with co-line arrangements on strata wordings.

Independent Strata Review (John Trowbridge) – Commissions disclosure review.

Since January 2022, we have seen increases between 20 to 55 per cent as result of insurers reviewing each risk based on different risk appetites relative to building sum insureds, claims experience, risk management practices and OC’s attitude in mitigating their risk as part of their duty in the ongoing maintenance of their buildings.

As we emerge from the COVID-19 pandemic, Insurers are reviewing their stances on outstanding defects and cladding remediation. They are being more accepting of clients who demonstrate a proactive approach to risk mitigation. For OCs not showing any attempt to mitigate their risk, insurers may increase their rates or decline insurance.

Despite the three quote rule being in place, any risk which has defects will always remain with the incumbent insurer. We believe that working with OC, SM and current insurer gives us a better outcome for the client. We see bombarding the market in its current state is detrimental to our client when insurers could be focusing on providing terms on risks that they may win. However if the defects are nearing completion, then approaching the market would give insurers a better chance to win the business. Ultimately, we endeavour to achieve balance in the market place with our approach.

The key to maintaining a reasonable outcome for our strata clients is to ensure we understand their risk and are able to provide a detailed and accurate underwriting submission to insurers. In doing so, we can provide the correct insurance and risk management advice.

Bellrock takes risk management and disclosure seriously. We have a long-term approach to managing our clients’ risks. This has resonated with our clients as they see the value being offered from a risk management, renewal and claims management perspective.

So far this year, we have been able to negotiate favourable outcomes across our strata portfolio based on our risk transfer methodology, which includes working closely with owners corporations, building management committees, strata managers and third party experts. Particulars of that strategy may be found in our article “Strata Insurance in NSW – Are your current arrangements achieving the best outcomes for your building?”

Areas of focus include:

New valuations.

Unexpected claims (despite not having claims for the last five years).

Update risk information – Defects remedial works, Maintenance and other (e.g., Fire orders).

We are in constant review and discussion of the remuneration earned with our clients. This is to ensure the OCs are not penalised in the event of a substantial increase. We have found that our transparent approach has proven beneficial in maintaining a long term relationship with clients.

Bellrock has engaged at an industry level to address the strata insurance industry review. We have made submission to Mr Trowbridge and met with him. We are buoyed at the areas sought to be addressed by his investigation and will keep our clients apprised of developments. Further particulars may be found in our article of 7 April 2022 “Review of Strata Insurance reveals shortcomings in industry practices”.

We hope in the next six to twelve months, we will start seeing some stability as market share and appetites increases due to global premium pools being replenished. However the uncertainty of the current weather events which is causing delays may extend the current state of the market.