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Exposing the high cost of strata insurance

A first-of-its-kind report written by Deakin’s Dr Nicole Johnston finds strata communities struggling to get insurance cover and enduring high costs.

Commissioned by the Strata Community Association, the report surveyed 454 strata managers and 280 strata lot owners, analysed 58 versions of state and territory strata management agreements, investigated 38 pieces of legislation and regulation and gathered complex data from insurers.

It found steep costs for insurance as Australia’s strata communities (owners corporations or bodies corporate for properties such as apartment blocks, units and retirement homes) paid insurance costs of over $1bn in 2020. These costs have skyrocketed by 74% since 2016.

Lead author Dr Nicole Johnston says the high, and growing, cost of insurance for strata properties is due to a combination of factors.  ‘Global pressures on the insurance market), as well as issues relating to building defects and cladding, adds to the overall cost of strata insurance,’ she says.

Some of those pressures in insurance markets are driven by global and Australian climatic events and, in Northern Australia, vulnerability to such events has created significant affordability hurdles and difficulties in securing cover. 

Strata insurance is also very highly taxed, with duties, levies and taxes averaging 27.45% of the cost of insurance premiums nationwide, with the figure in NSW closer to 40%. This amounted to a total of $230m paid in duties, levies and taxes in 2020 by strata communities included in the study sample.

Additionally, says Dr Johnston, ‘I think the report highlights the complexities of strata insurance. Due to the regulatory environment in which strata schemes operate, there are a number of laws that mandate the types of insurance policies that an owners corporation must take out for buildings and public liability.  The imposition of legally mandated insurance adds an additional layer of cost to be ultimately borne by strata lot owners.’

‘Owners of strata properties, unlike owners of other property types such as a free standing dwelling, are not afforded choice in terms of insurance take up. If you are an owner in a building in the northern parts of Australia, or an owner in a building with building defects and combustible cladding issues, or an owner in a non-traditional strata scheme, you may have limited choice in terms of insurer and the premium.’

The challenges posed by strata insurance mean that for most larger schemes the assistance of a third party professional like a strata manager is needed to ensure that the legal requirements are met.

The report highlights the role of strata managers in navigating the web of regulation, insurance providers, brokers and the individual strata communities they serve.

But the complexity of their work is such, says Dr Johnson, that ‘a more transparent supply chain is required to ensure that consumers (strata lot owners) are fully aware of the costs incurred in the distribution of strata insurance.’

Having found many areas of concern, the report therefore offers a suite of recommendations to address them, ranging from the elimination of duties on insurance premiums to ending “stacking” of taxation and replacement of emergency levies with regular rates or taxation. 

The report is available from the Strata Community Association.

The Strata Community Association 

Strata Community Association (SCA) is the peak industry body for Body Corporate and Community Title Management (also referred to as Strata Management, Strata Title or Owners Corporations Management) in Australia and New Zealand.

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