Taking the confusion out of strata insurance

As the Australian population has expanded and more and more people have embraced higher density (and often more affordable) living in recent years, there has been an exponential growth in strata-title property ownership.

With the growth in the number of strata-titled lots, the number of people impacted by the complexities of strata living – in terms of governance, management and insurance – has also grown. For anyone involved in strata property, it is important to be across the issues.

Strata title allows individual ownership of part of a property (called a ‘lot’ and generally an apartment or townhouse), combined with shared ownership in the remainder of the property (called ‘common property’ e.g. foyers, driveways, gardens) through a legal entity called the Body Corporate.

Strata-title property ownership was introduced in Australia in the 1960s and, since then, the popularity of strata living has grown from an initial concentration in a few small pockets of urban areas to become an important feature of the housing landscape across the country.

It has been estimated that around one in six Australians now live in strata complexes, including apartments and townhouses. Nationally, there are more than three million strata and community-titled lots. ¹

Role of the Body Corporate

Strata complexes are managed by the Body Corporate.

A Body Corporate, also referred to as an owners’ corporation, is formed when a piece of land is divided into apartments or townhouses. This entity is established by the land owners (which in most cases is the developer), and is the legal entity responsible for managing and maintaining the common areas (shared areas used by all residents) of a strata-titled property. Typically, there will be a committee made up of lot owners who can vote on certain issues/bring issues to attention. There may also be a Body Corporate/strata manager responsible for the day-to-day management of the complex, such as maintenance and administrative duties.

In addition to upholding all the rules and by-laws of the property, the Body Corporate is responsible for maintenance and repairs of common property, keeping records, and handling complaints or disputes between lot owners/tenants. Importantly, the Body Corporate is also responsible for managing insurance for the strata-titled property.

Legal responsibilities of the Body Corporate

Although each state and territory has different strata laws, Body Corporates across Australia all carry similar responsibilities for the safety, upkeep, repair and good governance of their buildings and associated land (such as driveways and shared gardens).

Importantly, a Body Corporate can be held liable for any personal injury or property damage that occurs in connection with common areas or common property. As such, it is essential that the Body Corporate secure appropriate building insurance and liability cover at the very minimum.

Strata insurance explained

It has been estimated that the three million strata lots across the country have an insured value of around $1.3 trillion.¹

Strata insurance is a mandatory legal requirement across Australia, and each state and territory has its own specific guidelines relating to strata insurance.

The Body Corporate is obliged to take out strata insurance to cover the building(s), common property, and common area contents of a strata scheme.

A broad policy that can provide cover for multiple properties within one building complex or block of land (e.g. duplex, townhouse, terrace, units, flats), strata insurance is designed for residential strata, community title properties, Body Corporates and owners’ corporations.

Although each jurisdiction has different legislative requirements, all strata insurance policies must provide:

Cover for common areas as defined on the property’s title from events such as theft, storm, water, fire and malicious or accidental damage.

Liability cover in the event of personal injury in connection with the insured property.

Residential strata insurance typically covers the building structure(s) and common property which includes the fixtures which form part of the building structure (e.g. fixed plant, machinery and underground services) and sometimes owners’ fixtures, fittings and improvements which form part of the building (e.g. balconies, windows, shared water pipes, sewage pipes and electrical conduits).

The insurance generally covers any commonly used areas/facilities within a property, such as lifts, pools, car parks, gyms, gardens, and driveways.

Any appliances, equipment, furniture, fittings and works of art in common areas for which the Body Corporate is responsible are considered common contents and are usually covered by the policy.

Generally, events like theft of common area contents, repairs to damaged property managed by the Body Corporate and the cost of recovery, if disaster strikes (like flood, fire, storm), are covered under a policy.

The insurance also provides liability cover in the event a person is injured on common property or if their property is damaged in connection with the insured property.

Limitations of cover

Contents

Strata insurance only covers the actual building structure(s) and the shared or common areas within it (e.g. pools, gyms or recreational areas), and shared area contents and property (e.g. common area lighting, fences, carpets in the hallways or shared appliances in common areas like washing machines in the communal laundry or roof-top BBQs).

While this insurance sometimes also covers the permanent fixtures within each unit (such as doors, built-in stoves and tiling), it does not cover any other contents within the individual unit. This means that unit contents like non-fitted appliances, furniture, floor and window coverings, light fittings, electronics and other personally-owned items are not covered by the strata insurance. The responsibility for insuring these items falls to the unit owner/occupant.

Strata laws differ state by state. You must ensure you understand what is and what isn’t common property and infrastructure (covered by strata insurance) as opposed to private lot property (which is your responsibility to insure) to avoid uninsured exposures in the event of loss or damage affecting your individual unit.

Legal (public) liability

Importantly, strata insurance only covers legal liability occurring on common property, so it only protects the Body Corporate against third party claims for property damage and personal injury sustained in common areas. When it comes to personal injury or property damage sustained at an individual unit (which may include non-shared areas such as a unit’s front garden or back courtyard), the liability falls to the owner/occupant.

Who insures what

A summary of who is generally responsible for insuring what when it comes to a strata unit is as follows:

Responsibility for strata insurance

The management of strata insurance typically falls under the responsibility of a strata manager, property manager, or a unit owner who has been authorised to oversee the policy on behalf of the owners (Body Corporate). Generally, each property owner within the strata building shares the cost of the strata insurance as part of their strata fees (strata insurance premiums are usually paid for out of the building’s administrative fund, which is fed by the strata levy paid by owners).

Owners/occupants require their own insurance to protect contents not covered by the strata insurance and also to protect against legal liability inside their unit (and possibly in their back or front courtyards too). Different insurance policies can provide the protection required based on occupancy (e.g. home contents for owner-occupiers, or landlord insurance and renters’ contents covers for leased units).

Other insurance considerations

While strata insurance is compulsory for all Body Corporates, depending on the individual set-up of the strata complex, other insurances may need to be considered.

One example is office bearers’ liability insurance. This coverage is a component of strata insurance policies designed to protect individuals who hold positions of responsibility within a strata corporation. It provides cover for legal costs and potential damages if an office bearer is held personally liable for a wrongful act or omission in their role. The insurance is designed to safeguard the personal assets of individuals who serve as office bearers, such as directors, officers, committee members, and trustees in the strata corporation. It can usually be included in a strata insurance policy as an add-on.

Another cover to consider is that of catastrophe insurance. While property damage from a catastrophic event would usually fall under the insured property section of a strata policy (subject to the terms, conditions, and exclusions), catastrophe cover provides an additional level of protection in the event the sum insured is insufficient (which is often due to the increased costs associated with the higher demand for supplies and services in the area). If in place, catastrophe cover is only activated when the building sum insured is exhausted, and a catastrophe is formally declared by the Insurance Council of Australia. The cover may be beneficial if the strata complex is located in a natural disaster-prone area (i.e. an area prone to bushfires, cyclones, or floods).  

Under Work Health & Safety legislation, the Body Corporate has a duty of care as a ‘Person Undertaking a Business or Undertaking’ (PCBU). This duty applies to all owners and managers and means that they must take reasonable action to ensure that anyone, including owners, service providers, tenants, and visitors who come onto the common property, are not injured. Various liability insurances could help protect the Body Corporate in the event it fails in its duty.

If the Body Corporate has employees (e.g. gardeners, cleaners, concierges), workers compensation insurance is mandatory. Compensation payable in the event a voluntary worker sustains injury may be covered under a community association insurance plan.

A Commercial Legal Expenses policy can help to protect against costs that are incurred in the defence or pursuit of legal action (such as commercial contract disputes, discrimination protection and ATO tax investigations).

Strata insurance and EBM

For more than four decades, EBM has helped Body Corporates across the country to provide comprehensive and cost-effective risk management solutions. Our brokers work with clients to understand their needs and source and negotiate appropriate cover (terms and pricing) within the insurance market.

Hundreds of Body Corporates throughout Australia trust EBM to secure the insurances needed to ensure compliance with applicable laws (strata, WHS, workers compensation and so forth) and to protect the strata complex, its owners, occupants and office bearers.

At EBM we believe in transparency and pride ourselves on honest dealings. EBM discloses all income derived from the placement and management of your insurance program. Our reputation, forged over almost 50 years, is based on partnering with our clients to find the best solutions for them and we operate under the principle of utmost good faith at all times.

Support when it counts: EBM Claims Management

EBM believes claims settlement is at the core of our insurance broking service and we ensure that prompt, fair and equitable settlements are negotiated with insurers on your behalf.

Our established claims management process ensures insurers are promptly notified of claims, the required documentation is prepared and reviewed, all parties are kept informed of claim progress, underwriters and third parties are effectively negotiated with, and payments are processed quickly.

We focus on early resolution of claims, acting as an advocate on your behalf and take a proactive approach to ensure you receive the benefits you are entitled to.

Work with your EBM Account Manager

Your EBM Account Manager will help ensure that your Body Corporate takes out appropriate strata insurance based on the specific requirements set out under the applicable strata insurance laws in your jurisdiction (see below Resources), and on the needs of your strata complex. Your broker will also discuss other insurance considerations specific to your strata set-up.

Strata insurance can be complex, with each strata insurer having its own policy wording which outlines the terms, conditions, and exclusions applicable. This information is a guide only.  It is essential that the Body Corporate understands the specifics of the policy (including any special and additional benefits such as temporary accommodation and loss of rent provisions) to ensure that the cover is appropriate. As your trusted risk management advisor, your EBM Account Manager has the expertise and experience to help you understand the details of your policy and work out what level of cover you need so that you are properly protected.

For more information, please contact us on 1300 755 112.

This article provides general advice only and not personal advice. In giving this advice we have not taken into account your personal circumstances, objectives, financial situation or needs. Read our Financial Services Guide for more information. Please read the policy documentation, including any Product Disclosure Statement and Target Market Determination to consider whether the insurance is right for you. If you have any queries, please contact us on 1300 755 112. 