Insurance for my Owners Corporation
BREAKING News – 20 Sept 2021
As those of us – ‘The Team’ providing input to The OCguide sit on several Owners Corporation Committees in Melbourne and also sit on a ‘Chairman’s Group’, current issues are front and center of our discussion. Lately we have been experiencing significant premium increases in insurance for our OC’s and the most significant contributing factor is water damage claims, significant excess increases in the case of such claims and many committees struggling to make sense of it all. Mind you when your $100K premium suddenly doubles it does make everyone sit up and take notice.
A strategy must be implemented to deal with this challenge and we can certainly assist.
Our next newsletter is dealing solely with OC Insurance and includes help for your OC to;
- Understand the premium upward pressure points.
- Understanding what inputs are required as your building matures (attempts to age gracefully) and how insurers look at your risk. I don’t like thinking of it like life/medical insurance, however, like your health you need to spend a few dollars now and then on maintenance. If you are a ‘prescribed’ OC under the Act are you utilizing your Long Term Maintenance Fund in accordance with your plan?
- Understand how Good FM Management and Record Keeping can be utilized to give your Broker/Insurer Confidence to go into bat for your OC.
- Use of water flow control measures to minimize claims,
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Insurance is important to protect your owners corporation (formerly known as a body corporate) and the personal assets of all lot owners. The law sets out the minimum insurance required but your owners corporation may also want to consider extra cover.
The minimum insurance required for an owners corporation is:
- Reinstatement and replacement insurance of buildings on common property
- Public liability insurance for the common property. Insurance for common property protects owners in the case of unexpected damage and injuries
This is not the case for two-lot subdivisions.
If your owners corporation represents a two-lot subdivision, it does not have to take out public liability and reinstatement and replacement insurance for the common property
But as owners of the common property you risk legal and financial liability. You should insure the buildings and have public liability insurance.
Reinstatement and replacement insurance
All owners corporations, except two-lot subdivisions, must take out reinstatement and replacement insurance for all buildings on the common property.
A building is defined as:
- A structure and part of a building or structure
- Walls, out-buildings, service installations and other things attached to the main structure
- Any pipes or cables used to provide services to a party other then the owners corporation or its members
- A boat or a pontoon permanently moored or fixed to land.
The insurance must cover:
- Replacement, repair and rebuilding of the damaged property
- Costs of demolishing and removing debris from the site
- Other costs such as employing an architect or surveyor
- Shared services
- Replacement of services and structures such as driveways and fences
When renewing insurance, all owners corporations must ensure that the sum insured is more than the value of the buildings.
An owners corporation should obtain valuations of the buildings it is required to insure. A prescribed owners corporation must:
- Obtain a valuation every five years of all buildings that it is required to insure
- Present the valuer’s report at the next general meeting
Public liability insurance
Public liability insurance covers your owners corporation’s liability to pay compensation in the case of any:
- Injury, illness or death of a person
- Damage or loss of property
Owners corporations with common property, except two-lot subdivisions, must have public liability insurance of not less than $10 million for the common property
Your owners corporation should get professional advice about its level of risk. Some owners corporations have lots with different uses (for example, residences and shops), which can mean significant differences in risk.
Lot owners in an owners corporation without common property can make a unanimous decision that each will arrange their own insurance.
Insurance for multi-storey developments
An owners corporation must take out both reinstatement and replacement insurance and public liability insurance for all lots in a multi-storey development if any of the lots are:
- Above or below another lot
- Above or below common property
This is not the case when:
- The lots are actually single-storey, such as multi-storey plans that define the space above and below the lots as common property
- The multi-storey development was registered under the Strata Titles Act 1967 and Cluster Titles Act 1974 and does not have lots above or below one another
Insurance for mixed-use owners corporations
Developments with lots used for different purposes, such as shops and homes, are called ‘mixed use’. The cost of insurance may be higher for some lots than others in a mixed-use development.
Specific lots within an owners corporation can pay an extra premium for increased risk.
What happens if the owners corporation cannot get insurance?
If your owners corporation cannot insure the common property on reasonable terms, the owners corporation may apply to the Victorian Civil and Administrative Tribunal for an exemption from the required insurance.
Your owners corporation can, by ordinary resolution at a general meeting, decide to take out any extra insurance that it considers important to safeguard the interests of its lot owners.
This insurance might cover:
- Office bearers’ legal liability
- Voluntary workers insurance (a form of personal accident cover)
- Workers compensation
- Fidelity guarantee
- Machinery breakdown
- Catastrophe insurance
- Lot owners’ improvements to the building
- Legal defence expenses
- Government audit costs
- Appeal expenses
- Common property contents (for items such as carpet and paintings in foyers)
Additional insurance should always be on the agenda and considered at the annual general meeting.
Professional advice about insurance
Consumer Affairs Victoria recommends that your owners corporation only use insurers approved by the Australian Prudential Regulation Authority (APRA). This industry-funded authority regulates the Australian financial services industry and lists approved insurers on its website.
Approval means APRA considers that the insurer is able to meet its policyholder liabilities. Your owners corporation should always seek guidance about approved insurers, the range of insurance products and the amount of insurance to cover its risks.
Your owners corporation may save money and find it easier to make a claim if all lots and common property are covered by the same insurer.
Consumer Affairs Victoria recommends that owners corporations obtain at least three quotes from different insurers.
Owners corporation managers and insurance
Consumer Affairs Victoria recommends owners corporations obtain at least three quotes from different insurers, even if the owners corporation manager has recommended a particular insurance.
Some owners corporations managers are authorised representatives of an insurer and hold an Australian Financial Services licence.
Consumer Affairs Victoria considers that it may be a breach of duty for a manager to:
- Act as an insurance agent offering to contract insurance for the owners corporation, and
- Receive commissions from a third party, such as an insurer, for selling that insurance
This could be both a breach of the manager’s duty:
- Not to ‘make improper use of the manager’s position to gain, directly or indirectly, an advantage personally or for any other person’
- To ‘act honestly and in good faith’
- To ‘exercise due care and diligence’.
The manager may be, or seen to be, influenced to place insurance policies with insurers who offer the greater commission, rather than choosing a policy to benefit the owners corporation. Managers should disclose any commissions received.
Many OC Managers make a choice not to accept commissions.
- Go to OC Act in the side menu bar re Owners Corporation Act 2006
- Go to VCAT in the side menu bar – Victorian Civil and Administrative Tribunal
- Go to Australian Prudential Regulation Authority (APRA) website
This information is provided by Consumer Affairs Victoria.