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Strata rates poised for more double-digit hikes after floods, brokers say

Residential strata premiums have risen sharply since the start of the year, in some cases by 25-40% or more for properties with suspect workmanship issues and other defects, according to brokers and industry insiders.

Last year’s NSW/Queensland flood event – the country’s costliest insured disaster with losses in excess of $5.8 billion – and subsequent La Nina-linked floods have also added to the price pressure, they say. 
Strata Insurance Solutions Practice Manager Tyrone Shandiman, based in Queensland, says he is seeing increases in the range of 15-30% with the standard excess for some insurers up from $1000 to $2000. 
“We attribute this to three consecutive years of La Nina which has resulted in higher frequency of claims, both small and large, and this includes the largest natural disaster on record,” Mr Shandiman told, referring to the February/March flood event last year. 
At the same time increased costs of building materials are having upward pressure on repair costs, which mean not only are insurers seeing more claims but they are also costing more. 
“These issues are also flowing into rising reinsurance costs and it has recently been reported that catastrophe reinsurance premiums increased by 27% for January reinsurance renewals,” Mr Shandiman said. 
Honan National Head of Strata Kieran Drum says the broker is forecasting residential strata rates will go up 15-20% heading into FY24. 
“The recent 7% inflation numbers are driving costs up across most industries,” Mr Drum told “What is concerning is the upwards cost pressure that remains of building materials and trades labour in the strata and real estate claims repairs sector.” 
Consolidated Insurance Agencies (CIA), a Melbourne-based broker whose specialties include strata, says it does not see the hard price cycle easing for at least a few more years. 
“The owners corporations need to budget appropriately for it… and we recommend a 20% increase be budgeted in future,” CIA Head of Strata Arthur Tsoukatos told 
He says last year’s floods and rising building materials costs have added to the long-running list of “stress factors” affecting the strata line such as non-compliant cladding, defective waterproofing works and other quality-related issues. 
“And there’s a high demand for insurance coverage with limited supply and indications are these hard market conditions probably will continue for some time before an improvement will be made,” Mr Tsoukatos said. 
He says strata residential properties are more difficult to place compared with non-strata because of “big problems with defects”. 
“Anything with defects that insurers can find they will work closely with their brokers, who then work closely with the body corporate manager to get those defects rectified,” Mr Tsoukatos said. 
“Because if they’re not rectified there is a chance that the insurance company won’t offer a renewal and it’s going to be very, very hard to place.” 
Strata Community Insurance MD Paul Keating says the premium rise varies and will depend on claims experience, geographic location, nature of construction, and risk or hazard attributes of occupants in mixed use and commercial developments. 
In some cases increases are being offset by application of higher insurance excesses, he says. 
Mr Keating says for this year reinsurance costs and high levels of claims inflation are primarily driving rates up. 
“[The floods] certainly have contributed to claims inflation due to constraints in supply of labour and materials, but in the absence of the floods premium increases would still need to occur,” he said. 
Mr Keating says water damage represents some 60% of claims and with the La Nina weather patterns over the past few years, “it is fair to say that defects leading to water penetration have contributed to an increase in claim numbers”.  
“Remediating flood-related damage had also exposed a range of unknown defects that body corporates need to rectify first, adding to delays and financial strain,” Mr Keating said. 
He says the total cost of strata insurance has also been exacerbated by the high level of government levies, duties and other taxes. 
“Unlike other property classes, strata insurance is by law compulsory and required to reflect full replacement costs at all times,” Mr Keating said. 
“This means that strata owners are constantly increasing sums insured and paying a disproportionate amount of taxes compared to owners of freehold properties who are choosing to either underinsure or in some cases not insure at all. This inequity needs to be addressed.” 
Melbourne-based Pilot is among the body corporates across the country that have been affected by the hardening strata price cycle. 
MD Luke Woollard says $2000 has now become the new standard for strata excesses. 
“Strata insurance premiums have surged over the last couple of years because of below-market-rate premiums, increased reinsurance costs, and catastrophic weather events, such as bushfires,” he said.  
“Other factors include fewer specialty strata insurers in the market, inflation, labour shortages, and delays in the supply of materials.”