Insurers call for coordinated approach to pave the future for strata insurance sector

The insurance industry has made 17 recommendations to help improve outcomes for consumers in strata complexes in a policy paper released by the Insurance Council of Australia (ICA) today. (ICA Media release 28 Nov 2024)

The paper, Improving consumer outcomes for strata communities, details the state-of-play in the strata insurance market in Australia, including expert analysis on the complexities and risks across the sector.

There are different national, State and Territory, and Local government legislative frameworks in place which create different responsibilities and requirements in relation to building developments and strata scheme management, all of which would benefit from modernisation to improve regulatory certainty and enhance protections for consumers.

Recommendations

Strata Scheme Management

The strata community needs to be empowered to make more effective decisions to ensure strata properties remain safe to inhabit, insurable and financially sustainable.

1. Strata management companies and peak bodies should actively educate strata managers, Strata Committees and owners corporations regarding roles, responsibilities, legislative requirements, administration of insurance and risk management guidelines to support de-risking of strata complexes.

2. The Insurance Council to develop consumer educational materials to improve lot owners’ understanding of insurance risk mitigation and insurance cost drivers.

3. Governments across the country should consider legislative reforms relating to licensing, qualifications and conduct of strata managers, if not already introduced, to support greater standardisation of strata management practices and capabilities across jurisdictions.

Transparency and Disclosure of Fees and Commissions

Full transparency of fees and commissions paid through the purchase of insurance and the flexibility for owners corporation to determine the number of insurance quotations to source can give owners corporation the opportunity to make informed choices that can lower the overall cost of insurance.

4. New South Wales Government should conduct a post-implementation review of the impacts of Section 166 of the Strata Schemes Management Act 2015 (NSW), which requires a strata manager to seek at least three insurance quotations from different providers for the owners corporation, to assess whether it remains fit for its intended purpose.

5. The National Insurance Brokers Association should continue their efforts in addressing remuneration and fee disclosures by ensuring standardised granular disclosure of insurance premiums, duties, taxes, remuneration paid to brokers and strata managers and other fees, and adopting informed consent obligations coming into effect July 2025

Construction

Improvements to building compliance and consumer protections can reduce the severity and frequency of building defects and damages in the long run for consumers in strata complexes, which will improve the insurability of strata properties across Australia.

6. Governments across the country should simplify and modernise existing State legislative frameworks that regulate the building design and construction industry.

7. Governments across the country should work towards implementing a national standard for occupancy certification to improve consumer confidence in the quality of strata complexes, similar to those introduced by the New South Wales Government.

8. Governments across the country should consider introducing additional audit checkpoints upon completion of critical building safety features to ensure these are up to standard prior to issuance of occupancy certificates, with quality assurance reports provided to insurers prior to purchase of strata insurance.

9. Governments across the country should address existing limitations regarding ongoing/longer term liability of serious defects for builders and developers, where negligence or wilful failure has been identified, with particular focus on expanding existing developer’s liability to impose personal liability on directors to combat consumer harm arising from phoenixing activity.

10. Governments across the country should explore other laws and initiatives, beyond those recommended in the 2018 Building Confidence Report, to improve consumer confidence in the safety and quality of building materials and reliability of building professionals.

Risk Mitigation

Strengthening the enforcement of building maintenance, improving the resilience of strata properties to extreme weather events and investments into mitigation measures can help protect communities and address insurance affordability concerns.

11. Governments across the country should strengthen regulation and enforcement in relation to the statutory duty to maintain and repair buildings beyond the building warranty period through to the useful life of the property.

12. The National Construction Code and associated standards need to be updated and amended to embed resilience and to require more stringent construction requirements to ensure buildings are built to withstand more extreme weather events in the future.

13. The Australian Government should continue to partner with the insurance sector to target investment in resilience and mitigation measures that reduce risk and protect communities, such as levees and floodways.

14. The Australian Government and insurance industry should continue to collaborate via initiatives such as the Hazard Insurance Partnership to better understand future climate risk to support enhanced policy making and investment decisions, including hard infrastructure such as levees and floodways.

15. The Australian Government should work with state counterparts to establish a permanent relocation and buy-back scheme, funding local governments to purchase lots in a strata complex from those in the most extreme weather risk exposed properties. These programs should initially be targeted to low socio-economic areas to assist people most at need move out of harm’s way.

16. Governments across the country should use planning powers to limit new development in areas prone to high risk from extreme weather events, such as flooding, bushfires, cyclones, and coastal hazards. The Insurance and banking sectors should be engaged early in the planning process, and consideration should be given to mandatory climate change risk assessments to identify these vulnerable areas. When developing regional plans, State and Territory Governments should prioritize areas with zero to low extreme weather risk for new development, taking into account the probability of hazards occurring and their potential impact on property and life.

Other Costs to Owners Corporation

Abolishing state taxes can reduce the overall cost of insurance by up to 40 per cent.

17. Governments across the country should consider the replacement of insurance taxes such as stamp duties and emergency services levies, with alternative revenue sources that are more equitable and efficient