A Strata Disaster in Insurance

The recent widespread flooding and other extreme weather in Australia have caused serious damage and loss, caused devastating losses, which have been borne by individuals and businesses, State and local Government, community organisations, the Australian Government, private insurers, and reinsurers, and have highlighted problems with insurance cover.

So, in March 2011, the Assistant Federal Treasurer, Bill Shorten MP, announced a review into disaster insurance in Australia which will concentrate on insurance arrangements for individuals and businesses for damage and loss associated with flood and other natural disasters saying "This Review provides an opportunity for an independent review of issues relating to insurance in light of the recent disasters, in the context of the long term funding of disaster relief".

The National Disasters Insurance Review will be chaired by Mr John Trowbridge, with Mr John Berrill and Mr Jim Minto as members and will report back to Government by the end of 2011.  The review will consider a number of specific issues, including -

• The extent of, and reasons for, non-insurance and underinsurance for flood and other natural disasters in Australia
• Factors that may impede the private insurance market in offering such cover

It’s a serious issue and it need addressing.

But, like many things strata corporations and strata owners are affected in different ways to other home owners.

At the moment in Australia whilst all strata corporations must insure their buildings for full replacement value most (if not all ) insurance policies exclude loss from flood and earthquakes.  So, in strata those things are not covered at all. There’s a debate about whether strata owners do or don’t realise this but, either way, this issue is part of the review. 

After submissions closed in May 2011, only one of the 12 submissions (made by CHU Underwriting) addressed strata issues.  It’s worth reading and says a few interesting things like –

• The proposed definitions of “flood” may not cover strata corporations since they refer to retail home building and home contents insurance
• The proposed definition of “retail client” may not cover strata corporations since they refer individuals and small business
• A new “Key Facts Statement” would complicate PDS disclosures for strata insurance
• Most strata corporations know that flood damage is excluded and CHU does not experience complaints or queries from strata owners about that
• A prescribed event coverage approach conflicts with most strata insurance which is based on coverage for all accidental damage with specific exclusions

These things highlight the importance and complexity of insurance in strata buildings.  And, how everyday things work quite differently for strata owners and how few people realise it.

So, keep an eye out for the developments and outcomes of this review.  And, well done CHU for highlighting the position of strata corporations and owners in Australia.

Francesco …