Strata insurance is not just a choice but a legal obligation in New South Wales under the Strata Schemes Management Act 2015. This legislation mandates that strata communities must secure and uphold sufficient insurance coverage for their buildings, common property, and public liability. Failure to comply not only violates the law but also exposes property owners to significant risks. Additionally, owners with mortgages may find themselves in breach of their loan agreements with lenders. Let's delve into common coverage provided by a strata insurance policy to understand its importance further.
Common Cover by Strata Insurance
Insured Property
The Building Sum Insured (BSI) should typically align to the latest insurance valuation, and include any CPI adjustments. It will generally cover:
Building: The actual building structure
Loss of Rent & Temporary Accommodation: Loss of rent coverage compensates strata owners for the loss of rental income if a property becomes uninhabitable due to an insured event, such as fire or storm damage. Temporary accommodation coverage reimburses owners for the cost of alternative accommodation for tenants during repairs or rebuilding.
Common Contents: Some policies may include cover for common area contents.
Public Liability: Public liability coverage is essential for strata communities to protect against legal claims arising from bodily injury or property damage that occurs on common property. This coverage extends to legal expenses incurred in defending such claims.
Voluntary Workers: This refers to coverage for individuals who volunteer their services to the strata community. It provides protection for volunteers against personal injury or property damage claims arising from their voluntary activities within the strata scheme.
Fidelity Guarantee: Fidelity guarantee insurance protects against financial losses resulting from dishonest or fraudulent acts committed by employees or members of the strata committee. It covers theft, embezzlement, and other fraudulent activities.
Office Bearers' Legal Liability: This coverage protects members of the strata committee or office bearers against legal liabilities arising from their roles and responsibilities in managing the strata scheme. It covers legal expenses and damages awarded in lawsuits related to alleged mismanagement or negligence.
Machinery Breakdown: Machinery breakdown insurance covers the cost of repairing or replacing essential machinery and equipment within the strata community, such as elevators, pumps, boilers, and HVAC systems, in the event of mechanical or electrical breakdowns.
Catastrophe Insurance: Catastrophe insurance provides additional coverage for catastrophic events that cause widespread damage, such as earthquakes, tsunamis, or terrorist attacks. It supplements standard insurance policies to ensure adequate protection against severe and unforeseen events.
Government Audit Costs and Legal Expenses: This coverage reimburses strata communities for expenses incurred in responding to government audits or investigations, including legal fees and other related costs.
Lot Owners' Fixtures and Improvements (Per Lot): This coverage protects individual lot owners' fixtures and improvements within their units, such as fixtures, fittings, renovations, and upgrades. It ensures that lot owners are compensated for damage or loss to their property (must be following Damage by any Event that is not otherwise excluded by the Policy)
Flood Cover: Flood cover provides protection against damage caused by flooding, including inundation of water from natural sources such as rivers, creeks, or heavy rainfall. It covers repair or replacement costs for property damage resulting from floods.
Additional Options: Depending on the policy and insurer, strata insurance may offer additional coverage options such as:
Theft
Glass
Floating Floors
Work, Health and Safety Breaches
Workers Compensation
While the extent of coverage directly influences the premium, not all aspects of coverage carry the same weight. Certain factors, such as the sum insured for the building, public liability limits, and additional coverage options, may have a more substantial impact on the premium than others. Understanding community needs allows for tailored insurance coverage, optimising protection while managing premiums effectively. By assessing risks and budget constraints, strata committees can strike the right balance between comprehensive coverage and affordability, enhancing overall risk management strategies.
Exclusions and Limitations
While strata insurance provides extensive coverage, it's essential to be aware of exclusions and limitations. Common exclusions may include pre-existing damage, wear and tear, gradual deterioration, and intentional acts. Additionally, there may be limits on coverage amounts for specific events or types of property damage.
Insurance Excess
Insurance excess is the amount that the policyholder must contribute towards a claim before the insurance coverage kicks in. It serves as a form of self-insurance and helps mitigate smaller claims, thereby reducing the insurer's exposure to frequent payouts. The excess amount can vary depending on the type of insurance policy and the insurer's terms and conditions. Typically, higher excess amounts lead to lower insurance premiums, as the policyholder bears more financial responsibility in the event of a claim. Understanding the insurance excess is crucial for policyholders as it directly impacts the cost of insurance and the out-of-pocket expenses in the event of a claim.
Premium Funding
Strata insurance often represents one of the most substantial expenditures for owners corporations. The financial burden can sometimes strain the cash flow of these entities. However, owners corporations may find relief through premium funding options. Premium funding allows owners corporations to spread the cost of their insurance premiums over manageable instalments, rather than paying a lump sum upfront. This approach helps alleviate immediate financial pressure and ensures that essential insurance coverage remains in place for the strata community. By utilising premium funding, owners corporations can effectively manage their cash flow while safeguarding their properties and assets with comprehensive insurance protection.
Compass Strata collaborates with top-tier specialist strata insurance brokers and insurers to secure the most comprehensive coverage for the communities under our care. By leveraging our extensive network and industry expertise, we ensure that our clients receive tailored insurance solutions that meet their unique needs and budgetary requirements. Our strategic partnerships enable us to access a wide range of insurance products and negotiate competitive premiums, delivering maximum value and protection to the strata communities we serve. With Compass Strata, you can trust that your property is in safe hands, backed by industry-leading insurance expertise and support.
Disclaimer: This article is intended for informational purposes only. It is important to review your own strata insurance policy Product Disclosure Statement (PDS) for detailed information regarding coverage specific to your community.
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