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Five key takeaways from our strata seminar

Insurance News held a half-day strata seminar in Sydney on Thursday, and more than 100 industry professionals attended.

Expert speakers provided insights on a variety of important issues. Here are five key findings from the event:

Strata insurance might not be as unaffordable as we think

CHU CEO Kimberley Jonsson presented interesting new data that challenged assumptions on strata insurance affordability.

Ms Jonsson asked attendees how much they would expect to pay a year for strata insurance, and the majority opted for the $1000-$1500 bracket.

CHU research shows the average across Australia’s capital cities is $954, and even when overlaying weekly incomes, the data still shows strata cover is more affordable than home.

“Despite the fact that strata title residents are earning less, their insurance … is actually much, much more affordable,” Ms Jonsson said.

She says premiums have gone up 82% in the past five years, and affordability is an issue for some.

“It doesn’t mean you don’t have individuals who are paying a lot. And it doesn’t mean that there [aren’t] schemes and people who are in distress financially.”

But she believes rather than strata being the cause of affordability challenges, it could be the solution. 

“The truth is strata is actually the answer to some of the affordability issues we have. Because we know that urban sprawl is headed out into floodplains.

“The way to stop that is with urban infill, and so we actually will have more resilient buildings if we build them in the metro areas.”

We need to think about uninsured climate threats

While cyclones tracking further south is a major concern and bushfire risk will rise across the country, Finity principal Sharanjit Paddam reminded attendees that – when it comes to strata – uninsured risks must not be forgotten.

Mr Paddam says coastal erosion and inundation is a significant concern that will come to the fore as the climate changes, and extreme sea level rise is “very difficult to protect from”.

“Everyone thinks you can put a seawall in and it'll be fine. But in fact, that is very difficult to do successfully and extremely expensive. We are expecting coastal hazards to become worse, and this may be an issue for some of your strata customers out there.”

He also talked about the issue of heat stress, which is ordinarily not insured and is even more concerning than coastal threats because it affects more of the country.

A key measure is the wet bulb globe temperature, which is a combination of temperature and humidity.

“At roughly 28 degrees wet bulb globe temperature, your body starts to cook, frankly,” he said. “And what we’re seeing in the projections, in the modelling that we’ve done, is that … the number of days we have over 28 wet bulb globe temperature is going to increase significantly. These are things that are going to affect the liveability of significant parts of Australia over time.”

Scrutiny on intermediary remuneration can be a positive

A panel discussion addressed the issue of affordability challenges in strata, and tackled recent publicity around intermediary remuneration and transparency.

On the panel were principal at Taylor Fry Jonathan Cohen, CEO at Whitbread Insurance Brokers Michael Giansiracusa, consultant John Trowbridge and Australian Consumer Insurance Lobby chair Tyrone Shandiman.

Mr Shandiman says from about 2016 to 2018, premiums were falling, but some brokers saw it as an opportunity to “load their fee” by as much as 20%.

He says it is the “elephant in the room that has been waiting to be exposed” and that “too many people have remained silent on the issue”.

Mr Trowbridge says brokers and strata managers are conflicted “the moment the strata manager takes any revenue at all from the broker”, unless there is a clear understanding by the body corporate of how it’s done “and in most cases, that’s not the position”.

But he says recent mainstream media coverage could accelerate change around removing conflicts of interest.

“There’s an onus, I believe, on both the strata managers and the brokers to do this and to do it as soon as possible. And we don’t know where the ABC [reporting] is going, or the report that Fair Trading is doing will go.

“But I'm pretty sure that somehow or other, all of that is going to accelerate the movement towards more open and more rational pricing arrangements for strata insurance.”

Action on building defects is still badly needed

Co-author of the Building Confidence report Bronwyn Weir says the situation with defects is “pretty dire” and “not a lot is changing”.

Flammable cladding is a symptom of a wider problem, she says, and after six years no government has implemented all her report’s recommendations, despite lobbying from groups such as the Insurance Council of Australia.

But what cannot be quantified in such reports is the true cost to owners. 

“Aside from the financial costs, the emotional stress to owners is astronomical,” she said. “And I have spoken to a number of these owners from some of the well-known buildings in this state, but also in other jurisdictions.

“It is extraordinary and heartbreaking to get off a phone call from these people who are dealing with this and having it pervade every part of their life.”

Strata has a trust problem and needs to solve it

NSW strata and property services commissioner John Minns told attendees that since the concept of strata was introduced in 1961, trust in the sector and the people involved has declined.

“That's due to many factors, including complexity, competence and, of course, cost.”

Mr Minns flagged escalating cost-of-living pressures, ageing infrastructure and, “on occasion, poor or weak professional advice”. 

“I'm not here as a critic of strata in any way,” he said. “But we don’t want there to be a failure of market confidence. We don’t want housing supply strategies to be impacted. We don’t want affordability initiatives to fail.

“And they are very much at risk as part of this conversation. Because the social and economic wellbeing for many in NSW and around Australia relies on strata, and it’ll be compromised if we don’t improve on confidence in that area.”

For more in-depth analysis, features and opinion, read Insurance News magazine