Published: 22 December 2008.

Contributed by Anna McVeigh of Solutions ie

Solutions ie, the leading report provider for the strata industry with over 24 years experience and 55,000 reports completed, has found that increasingly, strata buildings in areas like The Gap, Gold Coast and Mackay are under-insured, some by up to 78%, potentially leaving families bankrupt and homeless.
James Freestun, Managing Director of Solutions ie, commented; “We valued a building at the Gold Coast that was under-insured by 78%. The company that occupied the building’s primary business was dealing with industrial chemicals and the original building sum insured wouldn’t have even covered replacing the bricks to rebuild the structure.”

Solutions ie has found from completing almost 5,000 Insurance Valuations that typically the level of under-insurance in strata buildings varies between 16% and 34%, meaning that if a claim is placed for a building only a proportion of it would be dispersed due to the insurance companies averaging clause.
“The most frequently overlooked problem with under-insurance in the strata industry is your policies averaging clause. If a building was insured for $2,000,000 but in the event of a total replacement would cost $3,000,000 to re-build, the averaging clause would mean a payout two-thirds of any claim. So if there was a $100,000 claim for flood damage only $66,666 would be paid out, leaving $33,334 unaccounted for,” Freestun said.

Many building owners only insure their buildings for what the structure is worth when in actual fact, on average, an extra 30% should be added to the total replacement cost of the building sum insured.
Freestun stated, “Inexperienced Valuer’s often don’t take into account debris removal, planning and council costs, replacing old materials with new ones, and time and accommodation costs while the building is replaced.”

“Market prices also have a huge affect on replacing materials. In Queensland recently building costs have gone through the roof,” he stated.

Another common cause of under-insurance stems from valuations not being updated frequently. A representative for one of the three big insurance companies in Australia commented, “I would suggest that those responsible for building insurance increase their sum insured by 10% every year and have an insurance valuation done preferably every 3 years or whenever there is a material change made to the property.”

“An increase in Strata Insurance from $2m to $3m will probably result in an increase premium of much less than one third, so it's proportionately better value anyway,” he said.
A strata building more often than not has multiple residents and if it were to be totally or partially destroyed, landlords, tenants and business would be severely interrupted. The Body Corporate and Community Management Regulation 2008 was introduced in August 2008 and states that all strata buildings must have an Insurance Valuation completed at least every 5 years.

“With the likelihood of more storms to hit Queensland this summer it is essential that homeowners, Bodies Corporate and commercial building owners ensure their buildings are accurately valued.”

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