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What is Strata Insurance, and Who Needs It? A Helpful Guide

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Staggeringly, more than a quarter of Australian Strata Insurance policy premiums go directly to government taxes, Stamp duties and other types of levies. If you are in New South Wales, then that figure could be almost 40%, according to recent reports.

But what exactly is strata insurance, and who needs it?

As experts in all types of business insurance, let’s take you through this topic and give you the lowdown on this mandatory requirement.

What is Strata Insurance?

In a nutshell, strata insurance covers buildings, common property and the contents of common areas that are mandatory for owners of corporations (sometimes referred to as the body corporate) to purchase if they are members of a strata scheme.

This insurance, sometimes referred to as body corporate insurance, is available for commercial and residential strata properties and is mandatory according to individual Australian state legislation.

For instance, it’s a legal requirement in New South Wales for all Owner’s Corporations of a Strata Scheme to insure the building against such disasters as lightning, fire, or explosion.

A strata insurance policy usually covers properties within a building, similar complex or particular block of land. It covers common areas used within the building, such as residents' parking.

Strata insurance may also cover other general shared areas such as pools, gardens and driveways.

What does it cover?

Strata insurance is specific, in that these policies often have to cover types of property and areas within it that aren't covered by an average home type insurance policy.

Strata Insurance is mandatory and provides cover for building and common property against:

Theft
Storm
Water damage
Fire

Some of the common areas might include:

Spa areas
Tennis courts
Balconies
Lifts
Floors
Ceilings
Car parks
Garden equipment
Wiring
Walls
Windows

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Spa areas
Tennis courts
Balconies
Lifts
Floors
Ceilings
Car parks
Garden equipment
Wiring
Walls
Windows

Other common properties which might be included in your strata insurance policy could be fixed parts of some units, such as ventilation and air conditioning.

Most strata insurance policies will give you the option to include public liability, which will protect others from any kind of damage or injury that may happen on your property.

According to some sources, as strata insurance costs spiral, it’s even more essential than ever to be well informed and acquire a policy that’s right for you, an informed insurance adviser can help you with this.

Each policy can vary considerably alongside each state's requirements. The best strata insurance advisers will help you understand your strata agreement and that you have the best cover for your needs.

Suppose you own or lease a property under the strata scheme. In that case, it’s important to read the policy carefully so you can understand exactly what is covered and if you may need any other insurance, such as landlord insurance.

What doesn’t it cover?

With some of the recent price hikes in strata insurance, according to some investment analysts, it’s crucial to understand what other insurances you may need to ensure comprehensive coverage.

One of the most important considerations with strata insurance is not to assume that you are covered for a particular eventuality or malfunction of any specific items.

There can be many differences between policies, and although some are fairly consistent with strata policies, others are not.

You may require contents cover

Generally, you will find that personal items will not be covered by a strata insurance policy. This also includes other items such as furniture and appliances.

Ensure you thoroughly review your policy before taking it out, as you may need extra content cover.

Landlord insurance

If you are buying a property for any kind of investment and might be considering renting the property or part of the property, landlord insurance is another option to ensure complete coverage.

This is because strata insurance only covers common or shared property and might have exclusions, such as for any fencing to the property, landslip or even flood damage.

As mentioned, it’s also important to understand that unit holders, residents, staff or other employers' items or contents aren’t generally included within strata premiums.

Here is a list of some things that strata insurance generally doesn’t cover. It’s worth understanding that it will depend on the specific strata laws in your territory or state

Anything defined as common contents;
Temporary buildings such as caravans, mobile structures or houseboats;
Buildings currently in construction;
Blinds, curtains, carpets and rugs;
Trees, shrubs, plants, hedges;
Fixed floor or ceiling coverings;
Paint, tiles, wallpaper;
Portable or inflatable swimming pools; and
Any timber floors constructed at the time the building was built initially.

Make sure you have appropriate contents covered for your belongings, and those other things strata insurance does not protect.

What factors contribute to the premium

Like any type of premium, market rates can be affected by many factors. They may either increase or drop according to what’s known as the “Strata Insurance Rate Cycle”.

These outside factors can include the onset of a natural disaster, completion in the insurance industry, economic situations such as inflation and changes to regulations.

The strata premium paid will be based on some of the common factors listed below

How old is the building is;
The condition of the building;
Individual state law mandatory requirements;
Previous claims history;
The location and its particular risk factors;
How vulnerable the building is to a specific event. Such as its building codes, design materials, and age;
Whether commercial activities such as holiday letting take place within the building;
Any costs of common properties such as fire protection systems and lifts Pools or car parks;
Agents' fees and other commissions; and/or
Stamp duty and GST.

Who Needs Strata insurance?

The strata title schemes essentially refine ownership. It provides a framework for all management of development right from the planning stages through to the end of the project.

The scheme sets out all the rights of every party involved in a building.

The legislation requiring strata industry has kept pace with developments in the industry, and there are provisions under the scheme for a vast and evolving range of property types.

These include holiday complexes, leisure centres, residential apartments and even marine berths.

Essentially, strata insurance is a policy designed for:

Residential strata
Group and community title properties
Body corporates
Owners corporations (OCs)
Strata managers

Talk to Your Nearest Insurance Adviser About Strata Insurance

It’s important to make sure your strata insurance is managed effectively. If not, it can cause anxiety and stress for you and your Owners Corporation Management colleagues or any OCs you manage.

It can mean inadequate, late or poor insurance options alongside higher premiums and even slower claims outcomes.

OCs need adequate insurance for when you need it and insurance professionals who can help guide you through the process.

Find your nearest adviser here.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.

Insurance Advisernet, ABN 15 003 886 687, AFSL 240549

This article originally appeared on Insurance Advisernet News and has been published here with permission.