Strata: Building a brighter future
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The strata sector has faced its challenges, but CHU’s Kimberley Jonsson explains how moves to enhance the quality and safety of strata living and clarify the role of owners’ corporations promise better times ahead
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CHANGE has become a constant in recent times – and strata is no exception. The sector has certainly felt the aftershocks of COVID, but the strata terrain is shifting for other reasons too. Resolution of legal loopholes and moves to address long-standing building defects are among the phenomena reshaping the strata landscape.
Insurance Business asked Kimberley Jonsson, CEO of CHU Underwriting Agencies, to talk us through some of the significant developments and the ramifications for insurers and brokers.
The good, the green and the animal-friendly
“Legislative changes during 2021 have streamlined some lingering legal issues and provide more clarity on the legal requirements of owners’ corporations,” says Jonsson.
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CHU is one of Australia's largest and most awarded insurance underwriting agencies. Its accolades include winning Insurance Business Australia’s UAC Underwriting Agency of the Year award in 2021 and its Brokers on Underwriters gold medal in 2016–2021. CHU was also named ANZIIF's Underwriting Agency of the Year in 2017, 2018 and 2021 and won its Excellence in Workplace Diversity and Inclusion award in 2019. CHU created the very first strata plan insurance policy in Australia and started trading in Sydney in 1978. The agency specialises in providing comprehensive insurance for strata properties like apartments, units, villas and townhouses. It protects almost one million apartments, units and townhouses nationwide, with almost half a trillion in value insured.
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“Legislative changes during 2021 have streamlined some lingering legal issues and provide more clarity on the legal requirements of owners’ corporations”
Kimberley Jonsson,
CHU Underwriting Agencies
Several states have felt the effects of legislation updates.
New provisions in the NSW Strata Schemes Management Act 2015 include a requirement for owners’ corporations to serve all lot of owners with a copy of any application made to the dispute body, the NSW Civil and Administrative Tribunal (NCAT), concerning their scheme.
The changes also enable an application to the tribunal for a monetary penalty for contravention of an NCAT order. “This will close a loophole in the strata legislation that prevented NCAT imposing penalties on people who breach orders,” says Jonsson.
Another amendment to the Act makes it easier for owners’ corporations and owners to install solar panels and implement other environmentally friendly initiatives. Strata schemes now need only a simple 50% majority to install renewable energy in complexes instead of the often-prohibitive voting threshold of 75%.
With studies showing Australia has one of the world’s highest pet ownership rates, many were delighted when NSW ended its blanket ban on pets in strata units. The change was spurred by public feedback from the pets in strata survey carried out in 2021 as part of the strata schemes statutory review. That feedback and the consequent amendment show how much has changed since the Act’s introduction in 2015, with a huge shift to apartment living in NSW.
In Victoria, a key legislative change from an insurance perspective is that owners’ corporations will be allowed to levy fees to cover the premiums for reinstatement and replacement of insurance or for an excess amount required for an insurance claim. “This will require input from the insurers as to the impact of the claim on premiums, which will be complicated. It may also involve the owners’ corporation legally proving that the responsible party was negligent, adding complexity,” says Jonsson.
The state government also increased the minimum liability insurance cover required for owners’ corporations from $10m to $20m. This now means insurance valuations must be obtained every five years by all owners’ corporations (except Tier 5 two-lot subdivisions).
Another legislative rewrite empowers the Victoria Civil and Administrative Tribunal to make orders authorising lot owners to commence, prosecute, defend or discontinue proceedings on behalf of owners’ corporations, as well as requiring lot owners to pay the reasonable costs of owners’ corporations.
CHU’s Build to Rent product insures the property and provides liability insurance, machinery breakdown cover and catastrophe insurance.
The CHU product gives brokers new opportunities, says Jonsson. “There is a gap in the insurance market for these non-registered strata-style units. The risks seem to fall between the cracks for insurance, as they are neither a registered strata plan nor a residential home building.”
“Build to rent is popular in major cities in the UK, US, Japan and parts of Europe because it offers a more secure and better rental experience,” says CHU CEO Kimberley Jonsson.
With build to rent properties, individual builders and property developers retain 100% ownership of the unit/apartment block development, rather than selling some or all of the units on completion or registering them for a strata title.
‘Build to rent’ is a property trend that’s gaining momentum in Australia, and CHU has launched a product specifically tailored to the unique needs of this market.
“The changes mean spending can exceed the limit for committee spending to put in place or renew an insurance policy, if it's not a restricted issue,” Jonsson explains. “The committee must consider two insurance quotes if the cost of the insurance policy is above the major spending limit for the scheme.”
Life-or-death matters
Confidence in the safety of strata properties has been severely dented following the Opal and Mascot Towers debacle. On Christmas Eve 2018, thousands of residents were forced to evacuate Sydney’s new Opal Tower when gaping cracks triggered fears of a building collapse. Just six months later, Mascot Towers residents were locked out on the street when the beams in the 10-storey block were found to be cracking.
Now the appointment of NSW Building Commissioner David Chandler looks set to provide greater confidence for prospective strata purchasers.
“He now has the power to inspect building sites, prevent the issuing of occupation certificates, and call for documents and – an important feature – rectification of serious defects and recovery of associated costs,” says Jonsson.
Under legislation to strengthen the commissioner’s ability to monitor building construction, practitioners will have to submit a compliance declaration confirming that designs comply with the Building Code of Australia.
“Dangerous cladding is an issue that can no longer be ignored. If a strata building has cladding, the strata owners have to do something”
Kimberley Jonsson,
CHU Underwriting Agencies
“This is good news for the strata industry, strata insurers and the industry body – the Strata Community Association – which has been in close discussion with the commissioner for some time on these issues.”
Also welcome is progress on dangerous cladding. NSW followed the lead of the Victorian government, which in 2019 announced a $600m package to directly cover owners' costs to remove combustible cladding from high-risk buildings. The move followed a disastrous fire that raced up the side of the Spencer Street tower of Melbourne’s 41-storey Neo200 apartment building; the flammable cladding was the same sort involved in London's Grenfell Tower tragedy.
In addition, apartment owners forced to replace flammable cladding on high-risk buildings across NSW will be able to access interest-free loans. This is part of a $1bn government program over the next three years aimed at helping to resolve the crisis. The program includes $139m to establish and offer technical support to owners for the remediation of at-risk buildings.
The government will also cover the interest bill – capped at $930m – for loans taken out over the next three years by building owners to remove and replace combustible cladding.
“It’s an issue that can no longer be ignored,” says Jonsson.
The need to check and rectify cladding is ‘material fact’, she adds. “It's something people are aware of. If a strata building has cladding, the strata owners have to do something. At the very least, they need to have signed off to verify it's compliant.”
For brokers, it’s important to have candid conversations with clients whose strata properties have cladding or defects, Jonsson emphasises. “Being proactive is essential.”
“While some insurers have put cladding exclusions into policies, CHU will continue to support clients who show they are taking all reasonable steps to address the issue. We may have declined to offer cover due to a combination of cladding and other defects, but it’s never been purely based on the cladding.” CHU prices the risk into the premiums, she says. “In some cases it may be more economical to remove the cladding rather than take out insurance cover.”
The hard market makes it a particularly challenging environment for brokers and clients working in strata, says Jonsson.
“Getting multiple quotes can be difficult when risk appetites have changed, particularly for strata and building owners with cladding and building defects. In this hard market some insurers may be reluctant to quote or renew cover for these risks. A sustainable and consistent approach to underwriting is important to providing cover in different market cycles. Insurers should work closely with brokers, especially where they have established relationships, to place new or maintain existing cover.”
CHU's Build to Rent Insurance
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of the population
9%
13%
of households
Source: UNSW and SCA Australasian Strata Insights 2020 Report
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For more information, see https://www.chu.com.au/build-to-rent/
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Who lives in apartments in Australia?
“Legislative changes during 2021 have streamlined some lingering legal issues and provide more clarity on the legal requirements of owners’ corporations”
Kimberley Jonsson,
CHU Underwriting Agencies
CHU’s Build to Rent product insures the property and provides liability insurance, machinery breakdown cover and catastrophe insurance.
The CHU product gives brokers new opportunities, says Jonsson. “There is a gap in the insurance market for these non-registered strata-style units. The risks seem to fall between the cracks for insurance, as they are neither a registered strata plan nor a residential home building.”
“Build to rent is popular in major cities in the UK, US, Japan and parts of Europe because it offers a more secure and better rental experience,” says CHU CEO Kimberley Jonsson.
With build to rent properties, individual builders and property developers retain 100% ownership of the unit/apartment block development, rather than selling some or all of the units on completion or registering them for a strata title.
‘Build to rent’ is a property trend that’s gaining momentum in Australia, and CHU has launched a product specifically tailored to the unique needs of this market.
CHU's Build to Rent Insurance
“Dangerous cladding is an issue that can no longer be ignored. If a strata building has cladding, the strata owners have to do something”
Kimberley Jonsson,
CHU Underwriting Agencies
Copyright © 2022 Key Media
People
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Conditions of use
About us
Contact us
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Asia
NZ
AU
CA
US
UK
contact us
specialty
Best Insurance
Resources
RISK MANAGEMENT
FEATURES
TV
News
Copyright © 2022 Key Media
People
Terms & conditions
Privacy policy
Conditions of use
About us
Contact us
RSS
Asia
NZ
AU
CA
US
UK
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