The landscape of strata insurance in Australia is undergoing a significant transformation, driven by a series of unprecedented weather events and evolving industry dynamics.
Properties with a standard risk profile, characterised by minimal claims history and absence of building defects or construction issues, have witnessed an average increase of around 20% nationwide. In regions that have been particularly hard-hit by floods and storms, premium hikes have been even more pronounced, with average increases hovering around 40%. In this article, we’ll uncover the underlying factors behind the changes and shed light on the emerging trends that are reshaping the strata insurance arena.
Impact of Catastrophic Weather Events
Australia has been no stranger to the ravages of nature, particularly over the past few years. With three consecutive years of La Niña weather patterns, the nation has borne the brunt of numerous catastrophic weather events. A glaring example of this is the 2022 flooding and storms that wreaked havoc across southeast Queensland and Northern NSW. With a staggering 242,000 claims filed and insurers disbursing nearly $6 billion in payouts, this calamity has etched its place as one of the largest catastrophe events in Australian history.
The Role of Reinsurance in Premium Dynamics
Reinsurance, often described as insurance for insurance companies, plays a pivotal role in shaping the insurance landscape. It acts as a financial cushion that allows insurers to weather colossal losses stemming from catastrophic events that exceed their own financial capacity. As climate change and extreme weather patterns contribute to a surge in both local and global catastrophes, the costs of reinsurance for insurers have soared. This surge in reinsurance costs directly translates into premium increases, as insurers pass on these elevated expenses to policyholders.
Stringent Insurability Criteria
Insurers have adopted a more stringent stance when it comes to insuring properties with known defects, cladding issues, or other structural concerns. To ensure seamless policy renewal, it’s crucial to have a comprehensive plan in place and fulfill all prerequisites mandated by insurers well before the policy’s expiration date. Increasingly, buildings with known defects have had little, or more commonly, no option other than the incumbent insurer issuing renewal terms.
The Impact of Rising Construction Costs
The surge in building and labour costs can be attributed to a dearth of contractors and the surge in demand for materials following catastrophic events. This phenomenon has translated into a notable uptick in the average cost of insurance claims, which, in turn, fuels the spiral of premium hikes. While there are preliminary signs of construction costs plateauing, further relief is anticipated by late 2023.
Elevated Excesses and Their Rationale
Insurers have also adjusted their policies by increasing policy excesses. A standard general excess of $2,000 is now the norm, and properties with higher building sums insured might face even more substantial excess requirements. This measure has been undertaken to prevent steeper premium escalations and streamline claims administration for the deluge of claims falling under the excess threshold.
Safeguarding Against Underinsurance
Property owners bear the responsibility of insuring their assets for full replacement value. With labour and building material costs on a steady ascent, the risk of underinsurance looms large. Up to date property valuations (no more than three years) are a prudent practice to prevent this, as significant underinsurance could leave owners jointly and severally liable for substantial claims in the event of a disaster.
Partnering for Solutions: More Than Strata’s Approach
Here at More Than Strata, our collaborative efforts with our preferred broker, Body Corporate Brokers, the largest specialist strata insurance broker in Australia, are dedicated to conducting comprehensive premium reviews. This partnership is geared towards helping our communities achieve the right level of insurance cover at competitive rates, especially for properties with standard risk profiles. If you’re seeking assistance, don’t hesitate to get in touch with us today and explore the possibilities we can offer. As the strata insurance landscape evolves, so do our efforts to ensure your peace of mind.
Disclaimer: Insurance premiums are subject to individual circumstances, including property specifics, risk factors, and coverage options. The information provided in this article is intended for general informational purposes only and should not be construed as professional advice.
