The Insurance Council of Australia (ICA) is working on a strata insurance white paper that it expects to complete during the final quarter of this year. Andrew Hall (pictured above) revealed the news during a webinar hosted last week by the Financial Services Accountants Association (FSAA).
Hall was responding to a question from Insurance Business about another review of strata insurance recently completed by industry consultant John Trowbridge.
“I think John’s paper was very timely, it’s something that’s definitely on our radar,” said the ICA’s CEO. He described the Trowbridge strata review as very interesting and useful.
“I’m very worried about strata insurance in Australia and I think it’s another area where demand massively outstrips supply,” said Hall. Meanwhile, he said, more and more apartments are being built.
He said risk appetite across the sector “really changed” following the Champlain Towers collapse in Miami two years ago, particularly, he said, for buildings at risk of water damage.
On June 24, 2021, Champlain Towers South, a 12-storey condominium just north of Miami Beach in Florida, collapsed killing 98 people. Last year, survivors and families of victims reached a US$1 billion settlement in a class action lawsuit.
According to news reports, infrequent building inspections and insufficient waterproofing were thought to be causes of the collapse. However, the National Institute of Standards and Technology (NIST) is still investigating the disaster and doesn’t expect to release a final report until 2025.
Hall said the strata insurance sector involves “a lot of risk factors.”
“We’ve got apartment buildings that are governed by volunteer strata committees, some are very good, some are very under qualified for the role,” he said. “Then you’ve got building management companies that are contracted, some of them are very good, and some of them less so.”
As a result, said the ICA’s CEO, issues can develop in these buildings.
“And, all of a sudden, insurers walk away from them because they don’t want to touch them and people can be left high and dry,” said Hall.
He said strata insurance stakeholders need to work out new ways to approach these challenges.
“We do need to be leaning in on this and identifying ‘what are these risk drivers? Where can we lean on government or regulations?’” he said. Hall said the way forward could include educating the community at large.
The aim, he said, is to improve the way the strata sector functions so that buildings become “far more attractive” and are therefore able to find affordable insurance coverage.
John Trowbridge released the final report in his independent review of strata insurance in May. A major focus of the review – commissioned by Steadfast Group – was the fees and commissions charged by brokers and strata managers. Trowbridge said the existing “opaque” fee system should be phased out and provided recommendations to improve transparency and disclosure.
“We published a report for everybody and the report has died,” said Steadfast CEO Robert Kelly in an Insurance Business interview last week. However, Kelly hoped that industry stakeholders would look at the review and make decisions about “maybe changing some of the ways we’re going about doing our business.”
In an interview with IB, Hutch Underwriting’s Sydney-based CEO Robin Johnson said the issue of strata insurance fees is “very topical” and “slightly controversial.”
“Certainly, better disclosure would be a good first step towards moving to a different model,” said Johnson. “But I think that radically changing the model is going to be difficult because there is a lot of vested interest in keeping the model as it is.”
An article on the website of insurance brokerage, Honan, discussed strata challenges.
The article said reduced insurance capacity, trades and material shortages, inflation and longer open claim lifespans are among the issues. However, “a new challenge is growing,” it said.
“We are seeing far more buildings with defects and maintenance issues and insurers and underwriters are struggling to provide solutions for the volume of requests,” said the article.
The Honan report also discussed how insurers are responding.
“While owners’ corporations take up the help and advice offered to them by state governments, it is common to see insurers refuse to quote insurance renewals until defects and legal proceedings are fully resolved,” said the article.
What do you see as the strata insurance market’s challenges? Please tell us below
