In today’s strata insurance market, ensuring adequate insurance coverage for your strata scheme has never been more important to avoid underinsurance. Underinsurance can have severe consequences, leaving your scheme financially vulnerable in the event of any type of building damage.
Recently, Renee Reiri from CHU Underwriting Agencies discussed underinsurance and valuations in a webinar hosted by SCA NSW.
Here are five essential things you need to know:
Regular Valuations Are Important
If your building’s sum insured has not been reassessed in the last 2 years, it is likely underinsured. Underinsurance occurs when the coverage amount falls short of the actual cost required to rebuild, repair, or replace a damaged or destroyed property. Hence, it is advisable to do a building valuation every 2-3 years to ensure your insurance coverage is up to date.
What a Valuation Should Include
Valuations should be conducted by qualified professionals and encompass various aspects of the building, including the cost of common areas, external features (e.g., pavements, fencing and recreation facilities) and structural improvements. Additionally, valuations should account for inflation, labour and material cost escalations.
The 75% Rule
Some insurance policies still adhere to the 75% rule, wherein underinsured buildings receive only 75% of the sum insured in the event of a claim. However, this varies depending on the insurance product and its specific terms and conditions. Notably, CHU Underwriting Agencies does not enforce the 75% rule and will pay the full cost of the claim up to the sum insured.
Fact Sheet – Is you Strata Building Underinsured?
How to Avoid the Risk of Underinsurance?
To avoid the risk of underinsurance, you should take the following actions:
- Reviewing the sum insured annually, regardless of whether a new valuation is obtained.
- Obtaining valuations every 2-3 years.
- Factoring in all requirements, including the removal of debris, professional fees and the escalation of costs during the rebuild.
- Being aware of any undisclosed renovations and improvements by owners.
- Ensuring owners communicate any works within their unit to the owners corporation to ensure works are incorporated into the overall building sum insured.
Legal Obligations
While there is no legal obligation for regular valuations, owners corporations are legally obliged to ensure there is no shortfall between the sum insured and the building’s replacement costs. Any shortfall will be payable by the owners.