Strata Insurance - Premiums & Funding

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Contents

Strata Insurance: What is it?Why has Strata become such an issue?How much have Strata Insurance premiums increased?Other Factors Affecting Owners CorporationsCommon defects that impact insurance coverage. Insurance Premium Funding: What is it?Insurance Premium Funding. What are the options?Lannock's Insurance Premium is unique

Strata Insurance: What is it? 

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Strata buildings in each Australian state and territory are required by law to have insurance coverage. The specific requirements and regulations vary slightly from state to state. Insurance is required for both residential and commercial strata properties. Here's a brief overview of the situation in each state or territory:

‍Australian Capital Territory (ACT): Insurance must cover common property and public liability.
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‍New South Wales (NSW): Strata properties must have strata insurance that covers the building's replacement value as well as public liability. These requirements are outlined in the Strata Schemes Management Act 2015.
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‍Northern Territory (NT): Insurance requirements are similar to those in other jurisdictions.

‍South Australia: The Strata Titles Act 1988 in South Australia requires strata corporations to obtain coverage for common property and public liability.
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‍Queensland: The Body Corporate and Community Management Act 1997 mandates that strata buildings must have insurance for the replacement value of the building, including common property.  Public liability insurance is also required.

‍Victoria: Strata buildings are required to have strata insurance as outlined in the Owners Corporation Act 2006. This insurance includes damage to common property and public liability.
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‍Western Australia: Strata properties are required to have insurance as per the Strata Titles Act 1985. This insurance covers common property and public liability.

‍As you delve into strata insurance, it’s paramount to understand the type of insurance is required, the extras that might be available and to make the right choice of funding.

Why has Strata insurance become a critical issue?

There have been significant changes and pricing adjustments in global reinsurance markets. Rising inflation, supply chain constraints, catastrophic weather events, scarcity of materials and labour shortages are all factors driving the increasing costs of insurance in strata.

These changing dynamics have driven a sharp rise in strata insurance premiums. Understanding the increasingly strict conditions being imposed by insurers for strata insurance renewals is vital. Equally crucial is ensuring that necessary remediation work to meet the insurance requirements is done swiftly.

Other Factors Affecting Owners Corporations:

Lower Tolerance to Delays:

Strata insurance companies now have much stricter conditions for renewing insurance. They are demanding prompt action on works required as a condition of the insurance. Delays in essential repairs are leading to reduced coverage or denial of insurance until work progresses adequately. Owner Corporations with known defects face heightened scrutiny.

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‍Tight Timeframes for Defect Resolution:

Escalating premiums have created financial and time pressures for Owner Corporations and owners. The urgency to resolve, fund, and remediate identified defects can be very challenging.

In contrast to traditional IPF providers, Insurance Premium Funding from Lannock offers a unique solution we have eliminated the risk of policy cancellation due to late payments. Our IPF provides peace of mind and ensures uninterrupted coverage for the strata complex and its owners. It also offers a more efficient way to address increased insurance premiums by spreading payments over a manageable timeframe, aligning with the cash flow and budget of owners.

Common defects that impact insurance coverage. 

While insurers may require a range of repairs and improvements before renewing a policy, some defects are frequently encountered. These common defects include:

  • Removal of Flammable Cladding
  • Fire and Safety Deficiencies
  • Water Ingress
  • Roof Repairs
  • Concrete Cancer

These issues are of particular concern to insurers and often require urgent attention before policy renewal.

Insurance Premium Finding: What is it? 

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Insurance Premium Funding (IPF) helps Owner Corporations and Bodies Corporate manage their insurance costs. It allows owners to spread the cost of insurance premiums over time, typically in monthly instalments, instead of paying a lump sum. IPF ensures that Owner Corporations can maintain full insurance cover without straining owners’ cash flows. Given the time constraints on paying premiums, sometimes Owner Corporations miss premiums simply because of the time required to issue levies and receive payment – IPF can eliminate that risk.

Learn More or Request a Proposal

Funding your Strata's Insurance Premium. What are the options? 

Owner Corporations and Bodies Corporate have three funding options to address increased insurance premiums:

  1. Regular Contributions or Levies to the Administrative Fund: Routine contributions to the administrative fund provide a consistent way to cover insurance costs. This has been the most common form of funding for insurance costs when premiums are predictable and could be budgeted in advance.
  2. Special Levies: Owner Corporations can opt for a special levy, an extraordinary increase in contributions for the administrative fund, specifically designated to cover insurance premium hikes.
  3. Insurance Premium Funding: An alternative approach is to utilise a facility such as Insurance Premium Funding, which offers flexibility by spreading premium payments over the insurance period.

An urgent special levy may result in some owners experiencing an unanticipated financial strain. Delays or non-payment by some owners may jeopardise the time-sensitive premium payment.

Speak with our expert team about which funding option is best for you.

Lannock's Insurance Premium Funding is Unique.

In the past Insurance Premium Funding has usually been best suited for small and medium sized companies. However, the requirements of companies are different to those of Strata Corporations and most Insurance Premium Funding lending is not appropriate for strata.

1. We will NEVER cancel your insurance if you miss a payment

2. We offer a full 12 month term, not the usual 9 or 10 – this helps spread your payments better

3. We calculate and charge interest on the reducing loan balance – most Insurance Premium Funding quotes a ‘flat’ rate of interest – you are paying interest on the initial amount of the loan, not the balance that reduces over time.

When you change a 10-month Flat Rate to a 12-month Reducing Balance Rate, it looks like this:

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Lannock Reducing Balance Rate 8.00%
A Flat Rate of 7.914% shown as a Reducing Balance Rate on the same amount 19.716%
A Flat Rate is more expensive by 11.716%
    Speak with our expert team about which funding option is best for you.
    1300 851 585
    strata@lannock.com.au