If this were in the ACT, the situation would be very clear. The strata legislation here requires the OC to ‘fully insure’ the property. The requirement is without qualification about excesses etc. To the extent that it is not possible in practice to be fully insured because all insurance policies have an excess, the OC has to cover the shortfall of a valid claim. If the claim would have been valid except that the amount is less than the excess, then the OC has to cover the cost.
In other states, the legislation might be worded differently and it might be possible for the OC to avoid paying out for claims below the excess.