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.
Residential strata and body corporate insurance
Protection for your shared asset
Did you know that if you own a unit on a strata title or body corporate, you are legally required to have strata insurance (called principle policy insurance in New Zealand) in place?
The onus isn’t all on you, though — the costs of strata / principal policy insurance needs to be funded by the strata title owners. This is in accordance to their “ownership interest” which is usually a percentage of the shared costs relating to the common ownership of the overall property e.g. council rates, lawn mowing, maintenance, insurance etc.
Cover is often, but not always, organised by the body corporate, and then your share of the cost is factored into strata fees or levied separately.
Did you also know, that as an owner in a strata the legal structure means that you are subject to unlimited liability?
This is why there is law detailing what insurance must be purchased to protect the owners.
However, what are you covered for and at what point could the insurance be insufficient, requiring the owners to pick up the shortfall?
We’ve covered some residential strata insurance basics below.
What does it cover?
Residential strata or body corporate insurance is designed to cover all of the shared areas of a strata property. Think of things like gyms, lobbies, pools, car parks and lifts. Some common shared areas that might not seem so obvious can include ceilings, walls and other structural elements.
While the nature of cover will vary among insurers, most residential strata / body corporate policies are designed to provide cover for damage to shared areas, as well as public liability insurance. This latter aspect provides cover if a third party sustains an injury on the shared property, and will likely provide cover for any medical or legal fees.
In New Zealand, Strata Title/Body Corporate properties with 10 or more units must form a committee. Office Bearers/Committee Liability Insurance - which protects the Chairman and Committee members against law suits being brought against them for breach of their Duties to the Body Corporate - is now commonplace in a Strata/Body Corporate Insurance programme for this reason.
Coverage also extends to:
- Office Bearers positions that are taken up on the Executive Committee, to protect committee members from losses arising from alleged Wrongful Acts (defined in the wording) resulting from decisions made as a committee member.
- Liability to employees arising under the Workers Compensation legislation applicable to NSW, VIC, NT, ACT TAS and WA.
- Fraudulent misappropriation of the funds making up the build-up of the strata fees known as Fidelity Guarantee.
- Breakdown of electrical, electronic and mechanical plant known as Machinery Breakdown.
- Government audit costs and legal defence expenses.
What won’t it cover?
While exclusions do vary from policy to policy, some typical exclusions relate to flood damage, intentional damage to property, landslip or damage to the fencing of the property.
These differ greatly from country to country e.g. fencing and flood damage claims would normally be expected to be included in any principle policy issued in New Zealand.
Residential strata insurance also won’t cover your personal property or belongings. In New Zealand, landlord’s items are generally covered.
Some further things to bear in mind
If you are a residential strata / body corporate title owner, there are some other insurance-related things you should know.
Firstly, and most importantly, as we touched on above, having insurance will only provide cover for shared areas. While some structural aspects of the property you solely own may fall under the coverage, this coverage won’t extend very far. So, if you want to protect your personal property — be it home or contents — against fire, damage, flood, theft or anything else, you will need to have other relevant insurance policies in place.
Something else that might be worth knowing is the factors that contribute to the premium of residential strata insurance. These factors are pretty much the same as those that contribute to premiums for home and contents insurance. Things like the condition, age and location of the property are factors. Claims history, government taxes on insurance and the excess negotiated by the body corporate are also factored into the overall premium.
If you are concerned about the level of excess that has been negotiated, it might be worthwhile discussing this with the body corporate and making some calculations to see if that excess is of most benefit given the estimated costs to repair or rebuild any property.