Strata Insurance —Tips for Owners Corporations
Why should an Owners Corporation carefully consider their insurance cover?
- Cost — this is a major cost item for any strata. The average annual insurance expenditure on insurance in a large strata plan is around $130,000.
- Asset Protection — the average assets requiring protection in a large strata plan exceed $100 million. Inadequate or inappropriate cover can have very serious consequences for owners.
- Informed Decision-Making — Most Owners Corporations just “sign on the dotted line” when it comes to insurance, based on the recommendation of their strata manager and / or insurance broker. However, almost every Committee member, when asked, admits that they would like to better understand their insurance cover and the process by which the cover is put in place.
Questions to Ask / Points to Consider
Is your Strata Manager receiving a commission or an agent fee from the insurance broker?
Most do, typically around 15-20% of the premium (in other words a premium of $130,000 includes a $20,000 commission).
Is your Strata Manager prepared to forgo or rebate any commission received to the Owners Corporation? At a minimum, will your Strata Manager disclose specific details of any commissions received?
Some Strata Managers will agree to forgo their commission, so it pays to ask. An alternative to hidden commissions arrangements is to negotiate a separate, agreed fee with your Strata Manager for assisting the Owners Corporation to arrange its insurance. The Manager should be required to justify the fee, based on the work done.
Is your Strata Manager prepared to allow the Owners Corporation to deal directly with the Insurance Broker and is the Broker willing to reduce the premiums by the commission amount?
Note that dealing direct will mean that the Owners Corporation must be prepared to undertake research and negotiations with the Broker, which can involve considerable time and effort. But the benefits are: receiving professional advice (which few Strata Managers are authorised to provide) and, as a result, potentially superior coverage and lower premiums.
Have you investigated all opportunities to rationalise your insurance requirements?
There are several ways in which an Owners Corporation may be able to reduce their premiums, for example by (after careful consideration of the implications) agreeing to higher excesses or reduced sub-limits on specific elements of the insurance cover, or by consolidating different policies, aggregating their insurance cover with other strata corporations if they are all part of a larger complex.
Are there sources of insurance expertise that you can use to assist with negotiating your insurance needs?
There are independent insurance advocates who, for a fee, can assist Owners Corporations to decide their insurance needs. In many Owners Corporations there may be individual owners with insurance industry expertise who are only too willing to assist their Owners Corporation if asked. In any case the Owners Corporation may wish to co-opt interested owners as an informal “insurance sub-committee” to assist with the short-term workload.
Have you considered conducting a competitive insurance tender?
While the number of insurance companies offering strata insurance is relatively limited, some larger Owners Corporations have been able to secure significant savings through a competitive tender. A tender also enables an Owners Corporation to tailor its desired insurance cover specifically to its needs and helps to avoid paying for cover that it does not need or want.
Is your proposed insurance company easy to deal with and with a good track record of honouring legitimate claims?
You are entitled to be satisfied that your proposed insurer will promptly and fully settle your claims. You might ask either the Insurance Broker for references from existing customers of the Insurer and/or for their claim process to be fully explained.
Do you give insurance the time and effort it deserves?
Too many Owners Corporations dispose of consideration of their insurance in a few minutes each year, with little or no serious discussion. It is a good idea to insist that your Insurance Broker and / or insurance company make a formal presentation annually to the Owners Corporation, with the full proposal available well in advance of the meeting at which insurance is to be considered, so that Committee members have time to thoroughly review the terms.