Why unit owners can’t cut insurance to save

Fires in Hawaii, floods in Australia, earthquakes in Turkey and storms in New Zealand are likely to hit apartment owners in ways they can’t avoid. These natural disasters are driving up insurance costs across the world.

According to a recent report in the AFR, insurance premiums have risen 28 per cent cent over the past year. And, says an ABC news story, that is largely caused by local and global claims against natural catastrophes.

Add in cost-of-living challenges, and as many as one in eight home-owners may abandon home insurance completely. Make that house owners: apartment owners don’t have that choice.

Your block must, by law, have overall insurance to cover every eventuality, from bits of balconies falling off and injuring a passing lawyer in the street below to complete collapse of the building.

Whole-block strata insurance, to which you contribute via your levies or fees, is a well-chewed bone of contention, if only because strata managers get a healthy dose of commission – as much as 20 per cent of the premium in some cases – for arranging it.

Even if your owners corporation organises the insurance itself, cutting the strata manager out of the deal, the premium isn’t reduced by the amount of the commission.

One reason often given is that the insurers don’t want to have to deal with inexperienced strata committee members when they are negotiating cover or responding to claims. 

However, this doesn’t quite stack up.  For instance, if an individual owner has a legitimate claim but the committee is reluctant to pursue it, the owner can go directly to the insurer and get a pay-out.

Getting back to commissions, various state governments require strata mangers to reveal any commissions that they make.  Also, some strata managers don’t take the commissions or reduce their fees by that amount.

But when premiums are going through the roof, strata managers’ slices of the pie get bigger too and you can expect questions to be asked about what amounts to compulsory kickbacks.

Compulsory strata insurance aside, home and contents cover is the very least you should have as a resident and certainly as an investor.

In fact, landlord insurance, which should contain all the elements of basic insurance but can also cover your property for theft, accidental or malicious damage and lost rent, is well worth looking at.

Insurance policies differ in their details but all of them are going to cost more – those you can’t avoid and those that you probably shouldn’t. But at least they’re a legitimate tax deduction.