The strata insurance sector is predicted to grow rapidly in the coming years. As house prices increase, the general property purchaser and investor population is being forced to turn to more affordable apartment style living.

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The industry has reportedly been growing at approximately 6 per cent annually since 2013 according to Strata Community Australia (SCA), the industry peak body. It is further estimated that the gross written premium for all strata schemes in Australia is $800+ million, the strata insurance niche insures approximately $1.2 trillion of building assets.

Jesse Borthwick, MD, Longitude Insurance says, “There are approximately 300,000 individual strata schemes across Australia at present and this number continues to grow. High-density living is increasingly culturally consistent with the demographic change of our cities.”

It has been recently reported on ABC News that there are now more cranes servicing high-rise apartment construction down the east coast of Australia than in major cities across North America.

Property and construction group Rider Levett Bucknall states that the residential crane count has soared by 300 per cent in the last three years.

Developing a technical understanding and partnering with a specialist underwriting agency, will allow many brokers to capitalise on this growing market.

Indeed, Bobby Lehane, CEO, CHU Underwriting states that the strata market is enjoying an unrivalled period of growth.

“NSW is leading this growth and industry reports show 41 per cent of people will live in strata complexes by 2040 and nearly half of Sydney’s total housing stock will be multi-unit dwellings.”

In 1994, about half of all new dwelling constructions were apartments or townhouses. For the 2015 financial year, that reached 70 per cent of all new dwellings approved.

Regulatory background

So with all this growth, brokers looking to enter this specialised area need to consider the complex regulatory landscape that surrounds strata buildings that could impact on insurance.

General Manager of Longitude Insurance Gordon Bell points to several factors, including:

  • At a Federal level, brokers have to contend with all the usual legislation affecting their insurance activities, such as the financial services provisions of the Corporations Act and the Insurance Contracts Act.
  • At a state level, strata schemes are regulated by complex legislation. These Acts vary between states and, in some instances, the titling of property has as many complexities as the Acts themselves. Brokers should also be aware of other regulatory aspects related to the ownership of property, such as work health and safety.
  • In addition, local government requirements, such as those as seemingly simple as the collection of garbage, also need to be considered.
  • In the case of commercial strata schemes, brokers would need to bear in mind any related industry legislation.
  • Brokers need to consider the contractual obligations of the individual strata scheme.

It should be noted that, on occasion, conflicts may exist between any of the above too, he says.

“Brokers should not only be aware of all of the above but also remain abreast of changes in the regulatory environment,” Bell notes. “For example, the regulations to the NSW Strata Schemes Management Act have recently been amended to require all strata managers to provide a minimum of three insurance quotes to the owners corporation.”

FIVE THINGS BROKERS NEED TO KNOW

Nathan Shvily, Account Executive, Commercial Brokering Division at Arthur J. Gallagher says this is where brokers can really shine. “Owners corporations and agents are becoming more aware of where an insurance broker adds value and we are seeing more people looking for specialist advice around protecting their personal assets and their property under management.”

This is a view Simon Ingham, National Manager, Strata Unit Underwriters agrees with. He states: “Brokers have an important role to play in providing quality advice to their strata clients, from helping them to understand their risks right through to taking out the right insurance cover to suit their specific circumstances.”

To take full advantage of this sector, Shvily recommends that brokers invest time in networking with property managers and agents to build their trust and negotiate a fair referral agreement.

For brokers interested in this segment Lehane suggests: “The current strata broking space is dominated by a handful of specialists. Developing a technical understanding and partnering with a specialist underwriting agency, will allow many brokers to capitalise on this growing market.”

Bell recommends that brokers should have knowledge of the claims philosophy of the strata underwriter, and maintain a relationship with that underwriter apart from ensuring the policy matches the needs of the strata plan.

New risks

Lehane says that brokers can assist with ensuring appropriate levels of cover to help mitigate risks in this sector that arise from underinsurance, catastrophes and short term letting (for example Airbnb and Stayz) and recommend schemes to minimise risks.

The rapid expansion of Airbnb and other online letting services has become one of the most controversial issues for the strata sector, according to Lehane.

We are seeing more people looking for specialist advice around protecting their personal assets and their property under management.

“This risk will be difficult to manage and strata insurance may not extend cover to such arrangements,” he notes.

Lehane also says that the key trend in this sector that has far reaching impacts on the insurance markets is the changing structure and size of new strata developments.

“The development of the traditional six units, two storey walk up is now becoming the 200+ unit, mixed-use development comprising ground level retail, office space and multi-storey residential space.”

FIVE KEY TRENDS IN STRATA INSURANCE

1. There’s more of it: The number of strata insurance schemes is predicted to grow from 300,000 to 600,000 in the 30 years to 2050, encouraged by a confluence of economic and demographic factors that include the housing affordability crisis and a wholehearted embrace of urbanisation.

2. It’s not well-understood: Body corporates are mistakenly approaching strata insurance with a home insurance mindset, and are finding it increasingly difficult to navigate the complexities of their strata scheme obligations due to a complex web of changing regulation across Australia.

3. Risks are mounting: A range of factors – from an explosion of larger apartment buildings, to the use of inferior building materials – are combining to leave strata insurance schemes underprepared for the evolving risks they face, or underinsured when they need to make a claim.

4. New issues are emerging: From questions over the useful life of a building, to the rising insurance costs faced by older strata properties, and even the changing responsibilities of community associations in large scale community developments, new strata issues continue to emerge.

5. There are more insurance options: The substantial size and ongoing growth of the strata insurance market has seen a proliferation of insurance products and providers, reinforcing the need for clients and their brokers to deal with specialist strata underwriting providers who understand their needs.