Bodies Corporate should prepare for rising strata insurance costs by proactively managing claims and carrying out preventative maintenance.
It’s an unfortunate reality but insurers are predicting substantial annual increases in body corporate premiums over the next couple of years.
Insurance is typically the biggest single item on Body Corporate budgets so that is a heavy increase set to push levies higher and eat into savings.
Individual Bodies Corporate are just one small player in a much larger global market affecting insurance rates, so it is difficult to avoid being part of this trend. The current market state is described as ‘hard’ and is influenced by factors including global weather events leading to more claims, the legal environment which is seeing more substantial lawsuits, and general economic conditions which are uncertain at the best. The impact is that insurers are risk averse and are pushing their premiums higher to cover costs of business.
Which schemes are most at risk from rising strata insurance costs?
At particular risk in this market are schemes that make claims. This seems like something of a Catch-22, as what is the point of insurance if you can’t claim on it?
Well, it’s not that you can’t make a claim, but you need to be conscious that the more claims you make the more likely it is that there will be a corresponding rise in your premium or excess. This means claims have to be assessed judiciously. If some resultant damage from a storm will cost $1000 to repair and the excess is $500 the net return isn’t huge. Owners need to ask if it’s better to make the claim and have the incident chalked up against your history or wear the costs and move on. This equation can become particularly difficult if an individual owner is making a claim against the body corporate insurance. The claim may be legitimate and the insurer may pay, but the individual might not consider the wider impact and it’s not really their responsibility to take a loss to benefit all owners. For this reason, all claims should at least be advised to the Committee for review and possible settlement by the Body Corporate.
Is preventative maintenance the solution?
Then, schemes need to consider why they make claims and why insurers may view their site as a risk. In other words, they should ask how much preventative maintenance they have done recently. If the answer is not much, then that’s a warning flag.
One loose tile on a roof can lead to substantial water ingress into the space below. A small crack in the driveway that isn’t marked or filled can result in a trip and fall accident and a big claim against the owners. Does your site have a long-term problem that has drained the finances but has always seemed too big to fix? Maybe now’s the time to bite the bullet and get it done because not only will that make your complex better, it will show your insurer that you are lowering their risk and that understanding gives them something to work with when establishing your premium.
What can you do if you’re concerned about rising strata insurance costs?
If you are concerned about insurance at your site speak to your body corporate manager. Check the claims history for your scheme and see if there are patterns to the claims you are making and if they can be controlled. Make sure owners are conscious of the risks – they all pay the premiums through their levies – and have the Committee ready to make proactive decisions on claims management. Check what works are regularly being done at your site and ask if that’s enough.