Strata Insurance in NSW – Are your current arrangements achieving the best outcomes for your building?

The hardening insurance market (for further details see here) has impacted ‘property’ amongst other classes of business. Rates are increasing, coverage is narrowing. Like most classes of insurance/insureds’ we have noticed a trend that insured’s who have maintained continuity with their insurers are rewarded. Our article on insurer loyalty may be found here.

We put this down to the following:

1. Insurers are aware of the “3 quote rule” and when assessing risk, they understand that the “cheapest price” wins. To be cheaper they must compromise cover. Some markets are no longer offering officer bearer’s liability cover, whilst others will limit cover for flood, action by the sea, floating floors, machinery breakdown and crime.
   
   Otherwise insurers are reluctant to spend time on properly analysing a risk for fear their time in doing so and presenting quotations will simply be “shopped-back” to other insurers. This may cause insurers to not pay close attention in their underwriting (meaning the quotation will not be their best price) or alternatively, they will not quote at all.
   
   They are more likely to deploy their time and resources to “loyal insured” who in-turn will get the benefit of better underwriting and ultimately a lower premium.


2. Where no broker is involved, SM’s are burdened with presenting options to the OC. Whilst most SM’s Bellrock works with are highly trained in insurance many are not insurance practitioners.
   
   Insurance market conditions, subtleties in policy language (which may change year-on-year) and other “insurance” know-how are not their core business.
   
   The interpretation of s166’s has lead many SM’s in to chasing the ‘cheapest price’. The true objective must also include stability of pricing, consistency of appropriate/adequate cover, attention to clear and concise underwriting declarations, risk management, claims advocacy, and, insurer stability/loyalty/claims philosophy and financial strength.


3. Insurers and the reinsurers of strata are being presented with significant fluctuations in premium income and claim payments across their portfolios. Generally, where an insurer pays a claim and a new attacking insurer quotes less than the holding insurer (who has paid a claim and must “claims rate” the risk) then the holding insurer, who has paid a claim will miss out renewing because the attacking insurer has quoted less.
   
   In the ordinary course, an insurer who pays a claim is an insurer that should be supported. On renewal of any insurance policy, consideration should be given to claims paid not saving a few thousand dollars on a cheaper premium.

due to the current insurance market, based on our experience with other plans of a similar size and because the renewal premium has only increased ($x/x%) and/or because that insurer has paid X in claims, no alternative quotations have been sought for the OC’s renewal

Larger, complex plans

For the larger and more complex plans, SM’s have the same option. However, from a risk perspective to the SM and its client, the hardening market presents more challenges. In that regard it is more prudent for the SM to work with a competent insurance broker.

Some of the steps Bellrock has taken (working either directly with OC’s or otherwise with the SM and the OC) include:

1. Independent risk surveys – having an independent survey from a recognised and accepted insurance risk engineer will ensure that insurers have adequate and relevant information. It will also allow the OC to identify areas of improvement are needed to improve the risk profile of your strata plan.


2. Insurance replacement valuations - we would recommend regular valuations to ensure that the plan has the correct sums insured and importantly that it hasn’t simply accepted inflated values over time by using an arbitrary inflation ‘percentage’. It is also important that the plan has not undeclared values as this could impact claim payments.


3. Capital expenditure forecasts – preparing / disclosing 5 or 10-year projection plans demonstrates sound management of the building and the measures being taken to ensure it remains in good condition.


4. Defect and building reports – for relatively new plans, those that have undergone significant improvements and particularly those still under builders’ warranty, if there is advice on any defects they should be disclosed, as well as the remediation plan to address the defects.


5. OH&S building safety report - provide a copy of it and confirm that steps taken to remedy the concerns raised in the report.


6. Claims assessment – review past claims and specify what has been done to avoid future similar losses re-occurring. Whilst some claims are unavoidable where a plan can demonstrate that it is pro-actively mitigating against claims, this will enhance its risk profile.


7. Developing claims management procedure - in consultation with the SM you should prepare a claims manual, in particular the steps the plan will take to proactively manage claims, the experts engaged in the process and the protocols for all stakeholders to adhere to. Having an established claims manual will alleviate unnecessary costs and time in the event of a claim (where time is of the essence).


8. Claims advocacy – a broker must on behalf of the plan to ensure it receives its full entitlement to indemnity for any insurance claim. The broker must also protect the plan from “leakage” – unnecessary or inflated claims costs and expenses – failing to do so impacts premium. Otherwise the broker should expedite claims decisions from insurers (eloquently and professionally), coordinate with preferred and agreed experts, report on and update all stakeholders (Executive Committee, lot owners, SM, insurer, etc) on claim developments.

As a member of the executive committee of an OC you should:

1. Understand the coverage in place for the plan. Ask for detail at renewal so you can understand how the policy works, its shortcomings and how to more effectively address risk.


2. Clearly articulate the risk profile of your plan. What information is being provided to insurers? If insurers are only being provided with insurable values and claims experience it is unlikely that any improvements or risk engineering the OC has done is being put to underwriters.


3. Remember the importance of insurance. The OC is protecting the interests of all the owners in the plan. In the event of a loss all be relying on the policy that has been arranged at the direction of the executive committee. Any saving achieved by switching insurers for a lower premium (compromising on cover) will be quickly forgotten in the event of an uninsured loss.
   
   Notwithstanding, there are significant risks if continuity of cover is not maintained with the same insurer - particularly in respect of the ‘officer bearers’ liability section of the policy, which is “claims made”. For details on claims made insurance, see our article here.

Bellrock advises and arranges insurance for some of Brisbane and Sydney’s largest and most iconic strata plans. We have strong relationships with strata experts, leading strata insurers and have in place processes to ensure that we deliver comprehensive advice, stability in pricing and leading claims advocacy.