Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Commercial strata insurance
Insurance for your investment
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Did you know that commercial strata insurance is a legal requirement if you own a commercial strata title in Australia? Has this one question raised another question, like, say, what is commercial strata insurance?
Fear not, we’ll break it down into some bite-sized chunks.
How do I know if I need commercial strata insurance?
Commercial strata insurance is designed to protect common property — that is, commercial (not residential) property that is jointly owned as part of a body corporate, group or strata title. If you own property as part of any one of these entities, then you must have strata insurance in place, the cost of which is usually divided among the various owners of a strata title. Each state and territory has its own terms and conditions regarding the specifics of the required strata insurance.
What does commercial strata insurance cover?
As always, policies will vary among insurers, but some typical sections of cover among commercial strata insurance policies include the following:
- Insured property — loss of or damage to insured property, which includes cover for storm damage, theft, vandalism, malicious damage, etc.
- Machinery breakdown — this relates to electronic, mechanical and electrical plants
- Legal liability — this includes costs associated with personal injury, as well as loss of or damage to property
- Fidelity guarantee — this will trigger in the event any of your funds are subject to fraudulent misappropriation
- Catastrophe insurance — this is pertinent in Australia in the event the Insurance Council of Australia issues a catastrophe code, and relates to an unpredicted jump in the cost of replacing insured property following a catastrophe
- Voluntary workers — this section provides cover for payments made to workers who suffered significant injury or incapacitation while conducting voluntary work on your property
- Office bearer’s liability — this relates to any legal liabilities that arise as part of an office holder’s wrongdoing
What isn’t covered as part of commercial strata insurance?
Again, exclusions will vary between policies, but most insurers will not provide cover for the following:
- Anything related to nuclear activity or war
- Lawful seizure of insured property
- The loss or destruction of electronic data
- Intentional damage of property
It’s also important to be aware that there will be limits applied to each section of cover.
Acts of terrorism may also be excluded. However, it’s important to note that this exclusion will depend on the percentage of occupancy. If the commercial occupancy is less than 50 per cent of the floor area, then it’s possible there will be no cover at all. In the case of less than 50 per cent occupancy, the owners corporation should then make an assessment about the level of terrorism-related risk exposure and determine if a separate insurance policy would be worthwhile to cover the terrorism risk.
If the commercial occupancy is more than 50 per cent of the floor area, then the Terrorism Act and Australian Reinsurance Pool Corporation (ARPC) may provide cover. The ARPC acts as an insurer to your insurer, to ensure you and they have enough capital to cover the claims that come from a terrorist incident.
Is there anything else I need to know?
There are two main pieces of information that don’t fall into the categories of what’s covered and what isn’t.
Firstly, it’s important to note that having commercial strata insurance in place won’t mean you can ignore other types of business insurances— the main ones being property, workers compensation and public liability insurances.
Secondly, you should be aware that location will affect commercial strata insurance premiums. Property located in storm, cyclone, earthquake or fire-prone areas will obviously carry a higher premium than property located in areas considered to be more low risk.
What should I do if I’m confused about how commercial strata insurance is relevant to me?
If you’re unsure about how commercial strata insurance might be relevant to you, or if you’re confused about how the specifics apply in your situation, it’s highly recommended that you contact your insurer or broker.