July 2024 Market Update – Strata

Following our Market Update in January 2024, we are now starting to see premium increases flatten for plans with no claims, concrete construction and minimal risk to natural perils (e.g. flood, storm, bushfires and the like). Increases of 5 to 10 per cent are typically seen on these types of placements and in some cases, we are even seeing slight reductions.

The key driver of this shift is pressure from several relatively new underwriting entrants into the strata market, all trying to buy market share, creating more competition.

These underwriting agencies are all playing at the lower end of the market (under $10M building sum insured), which accounts for approximately 80 per cent of the strata market.

The big question is, will this create a false economy as we have seen in the past?

In the last decade, we have seen four large local insurers (AIG, Vero, Zurich & ACE) exit the strata insurance market due to unprofitable portfolios. This reduction in the number of participants in the market, in turn drives premiums up.

Whilst premiums are an important factor, the following items must also be considered:

Policy coverage.

Insurer's claims paying ability and philosophy.

Whether you are dealing with an Australian or foreign insurer, as the claims approach and application of policy exclusions differs quite significantly. Foreign insurers have been known to exclude claims which are paid by Australian insurers.

Stability and the trading duration of the underwriting agency and/or Insurer. Most of the leading players in the strata market are underwriting agencies. An underwriting agency is backed by an insurer who provides the agency with authority to write business and settle claims on the insurer's behalf. Some of these arrangements, known as a binder, only last for 12 months and need to be renewed at expiry. The profitability of the book of business written by the underwriting agency, will determine if the insurer will renew and extend the arrangement or decline to continue offering security. If they decline to renew the binder agreement, this leaves the underwriting agency to find an alternate insurer or, if they are unable to secure this, they are forced to close the doors.

Having a strong and longstanding relationship with one insurer will generally assist with premium and coverage consistency in the long-term.

Increases over and above 10 to 20 per cent are still materialising on accounts that have the following characteristics:

High claims costs and/or high claims frequency.

High natural peril risk location (i.e., flood, storm, bushfires etc).

Outstanding building defects and rectification works.

Combustible cladding (ACP), etc.

Risk management and proactive action being taken by the Owners Corporation / Body Corporate to reduce these risks, are key factors insurers consider. Please be sure to communicate any action or steps that have been or will be implemented, so we can inform insurers and use this information to negotiate and secure the best outcome for strata plans.

Update on insurer service standards

As mentioned in our Market Update in January 2024, insurers’ service standards have suffered in the last 6-9 months, resulting in renewal terms and quotes exceeding the requested timeframes.

We anticipated, based on the feedback we received from the respective underwriting agencies in late 2023, that service standards would return to previous levels by the end of the first quarter of 2024. This has not occurred for various reasons, including staff shortages and the resources required to eliminate the backlog, making it difficult to return to their previous standards in a timely manner. We are continuing to seek weekly updates from insurers, to assist with reporting to clients and meeting delivery standards.

We are also seeing a drop in the service delivery standards from a claim perspective, driven by a skill shortage in the strata market and changes to insurers’ internal reporting and review processes.

With the changes to the internal processes alone, we are seeing holding periods of up to 4-6 weeks for large losses (over $50,000 in value) before indemnity is confirmed by the insurer.

This approach is not consistent among strata insurers and could be detrimental to policyholder retention.

In our next market update, we hope to report that these service standards have returned to the previous and adequate levels.

Should you have any questions regarding the strata insurance market, or your individual coverage requirements, please don’t hesitate to contact our Stata Team for further discussion and insights.