Introduction

For strata managers and owners corporations, insurance is a critical aspect of managing strata properties. It not only protects the physical structure and shared facilities but also provides financial security against a range of potential risks, including natural disasters, accidents, and liability claims. This guide offers a comprehensive overview of the insurance requirements and best practices for strata properties, helping managers and owners corporations navigate their responsibilities and ensure that their assets are adequately protected.

Why is Insurance Essential for Strata Properties?

Insurance is crucial for strata properties as it provides comprehensive coverage for various risks associated with shared ownership structures. Strata insurance protects owners from financial loss due to damage or destruction of the building and any common contents. The policy indemnifies the owners corporation against claims arising from personal injury or third-party property damage that occurs on the premises.

For strata administrators, council members, and owners, insurance is an essential tool in managing the risks associated with residential and commercial strata properties. These risks can range from natural disasters, fire, and water damage to accidents in common areas. By having adequate insurance, stakeholders can safeguard their investments and ensure the long-term sustainability of the property.

Legal Obligation of Owners Corporation to Take Strata Insurance Cover

In New South Wales, strata insurance is a legal requirement for owners corporations managing strata schemes. This obligation ensures that the common property and assets of the strata scheme are adequately protected against various risks, providing financial security and peace of mind for all lot owners.

Mandatory Insurance 

1. Building Insurance: Building insurance is essential for Owners Corporations in New South Wales as it provides comprehensive coverage for replacing or reinstating the building to an as-new condition. This insurance includes fees for architects or other professionals needed to repair the building and the cost of removing debris. To ensure adequate coverage, regular building valuations are necessary. It is recommended to obtain a new building valuation every 2 to 5 years by contracting a certified valuer. Building insurance can be obtained by contacting an insurance company directly or through an insurance broker.
2. Public Liability Insurance: Public liability insurance is another crucial component, covering the Owners Corporation’s responsibility for property damage or personal injury/death that may occur within the strata scheme. This insurance is vital for protecting against lawsuits, such as those that may arise if someone is injured on the property. The minimum amount of cover required is $20 million, ensuring adequate protection against potential claims. Similar to building insurance, public liability insurance can be secured through an insurance company or broker.
3. Work Health and Safety Insurance: Work health and safety insurance covers work-related injuries or diseases sustained by workers on the property. However, this insurance is not required if the strata scheme does not directly employ any workers (excluding contractors) and if the complex is solely used for residential purposes. This distinction helps Owners Corporations manage their insurance obligations according to the specific nature and usage of their property.

Optional Insurance

In addition to mandatory insurance, owners corporations can consider other types of insurance policies to further protect their strata scheme. These optional insurances are not legally required but can provide valuable additional coverage.

1. Voluntary Workers Insurance: Voluntary workers insurance covers any liability the owners corporation may face if a person performing voluntary work (without fee or reward) in the building or on common property is injured or causes damage. This insurance is particularly beneficial in situations where volunteers contribute to the upkeep or improvement of the property.
2. Shared Contents Insurance: Shared contents insurance covers damages to items on common property, such as washing machines, gardening equipment, or gym facilities. This insurance helps protect shared assets that benefit all lot owners, ensuring that these items can be repaired or replaced in the event of damage.
3. Temporary Accommodation Insurance: Temporary accommodation insurance covers the cost of temporary housing for property owners if their unit becomes uninhabitable due to damage. This insurance provides financial relief and support to residents while repairs are being made, ensuring they have a safe place to stay during this period.

Exceptions for Two-Lot Strata Schemes

Owners in two-lot strata schemes may be exempt from mandatory strata building insurance if the buildings are physically detached, no parts of the building are located outside the two lots (such as on common property), and the Owners Corporation unanimously decides against it. In such cases, individual building insurance may be an alternative.

What is Included in the Insurance Premium?

When calculating your total insurance premium for strata insurance, several components are factored in, each contributing to the overall cost.

1. Risk Premium: This portion of the premium is retained by the insurer to cover potential claims under the policy. The risk premium is influenced by various factors such as the size, age, construction type, facilities, location, claims history, and other risk factors like structural defects.
2. Emergency Services Levy: The Emergency Services Levy is a funding contribution to services like NSW Fire and Rescue, the Rural Fire Service, the State Emergency Service, and other first responders. The levy rates typically range between 13%-16% for residential strata and 22%-28% for commercial strata properties.
3. Stamp Duty: In New South Wales, most insurance policies are subject to a stamp duty, which is currently set at 9%.
4. Goods and Services Tax (GST): Insurance premiums also include a GST, which is applicable to all insurance policies.
5. Commissions and Fees: Commissions and fees are often associated with the services provided by brokers or strata managers. These professionals play a crucial role in securing suitable insurance cover, negotiating premium rates, offering insurance advice, and managing claims. The rates and structure of these charges vary depending on the specific arrangements and needs of your building.

Record Keeping and Reporting Requirements for Owners Corporation Insurance

In New South Wales, the owners corporation of a strata scheme must adhere to specific record-keeping and reporting requirements related to insurance and financial management. 

1. Annual Reporting: The responsible person in the strata scheme must report key information to the NSW government annually, including details from the latest AGM documents. This includes the capital works fund balance and the insurance replacement value for the strata scheme. 
2. Record Retention: Owners Corporations must keep records of financial management and insurance for up to seven years. These records must be available for inspection by any owner or inspector upon request.
3. Electronic Records: From 11 June 2024, all records must be maintained electronically. Schemes may also keep physical copies, but electronic records are mandatory.
4. Meeting Documentation: Whenever the Owners Corporation or strata committee holds a meeting, documents related to the meeting must be retained. For annual general meetings, details of the insurance taken out by the Owners Corporation must be included in the records.
5. Strata Roll Maintenance: The Owners Corporation, strata manager, or secretary must maintain the strata roll, a comprehensive list of owners within the strata scheme. The strata roll must be kept for the entire duration of the scheme and include insurance details and other relevant information.

How to Make an Insurance Claim?

Strata insurance policies cover a range of incidents, such as impact, storm, accidental, malicious, fire, and water damage, with less common claims like flood damage and cleanup after a cadaver removal. To make a claim, determine if the damage is to private or common property. 

The claims process includes providing incident details, ensuring tradespeople access, mitigating further damage, reporting criminal activity, and preserving the damage site. The responsibility for the insurance excess depends on the cause and location of the damage, typically falling on the individual responsible for the incident or the property owner.

To streamline claims, prepare by selecting suitable insurance, understanding your coverage, maintaining detailed records, and documenting the property. Communicate promptly with your insurer, minimise further damage, document emergency repairs, and avoid common oversights like missing policy details or police report numbers. These steps help ensure an efficient and stress-free claims process.

For a detailed understanding of the claim process and practical tips for a successful claim, make sure to read our article here.

Key Takeaways

Proper insurance coverage is indispensable for strata managers and owners corporations, providing the necessary protection for both the property and its occupants. Understanding and fulfilling insurance obligations, including mandatory and optional policies, is key to mitigating risks and safeguarding investments. For expert advise on optimising your insurance strategy, PBL Law Group is here to help. Contact us today to protect your strata.