Brokers say it’s almost impossible to place business in Far North Queensland’s strata market and despite premium increases of up to 400% they are urging customers to grab any option for cover.

But despite these stratospheric rates rises, unit owners, developers and investors will have little choice but to accept whatever they can get at the time of renewal.

Brokers believe underwriters are deliberately pricing themselves out of the market, leaving customers with few options.

While most might automatically draw a line between the growing number of natural events battering the Australian coastline and these massive premiums renewals, brokers are telling a different story.

Far North Insurance Brokers Director Doug Olsen still can’t pinpoint the reason behind the withdrawal from the strata market, particularly as there is such a demand in Far North Queensland.

He says underwriters are squeezing out “massive” premium rises of as much as 400% for some customers. But he’s confident it has nothing to do with the recent floods and cyclone.

Brokers currently have three remaining options for cover. They say Zurich is not taking any new business in the market, while increasing rates by 300-400%; specialist strata insurer SUU, which is underwritten by CGU, is imposing rises of more than 250-300%; and AMP only takes business up to $3 million, but has much smaller rises of about 80-100%.

This follows Zurich’s assertion in January that it would remain in the market but at a cost for clients saying it had “decided to support existing business by continuing to offer cover to our customers by implementing sustainable pricing”.

“It’s a very difficult market for body corporate right now, they are stuck between a rock and a hard place,” Mr Olsen told insuranceNEWS.com.au.

As talks over the need for a natural disaster insurance scheme or flood pool arrangement heat up, Strata Communities Australia is calling for the government to look closer at the problems in this niche market.

CEO Mark Lever says some unit owners in the cyclone belt are now facing increases ranging from 200-400%, which equates to about a $3000 jump on last year’s premiums.

He says this is having a massive economic effect not only on ordinary householders, but also the property investment market.

In a submission to the Natural Disaster Insurance Review, he says a sustainable solution is unlikely to occur without government intervention in the market.

“And arguably, governments at least at state and local level have some moral if not legal responsibility for the risks created by past planning and development decisions.

“Some financial exposures to the consequences of these decisions may concentrate their minds on avoiding such risks in the future as well as help the economic case for investment in mitigation.”

Mr Lever says as strata is a specialised market which generally works well, any government intervention would need to be carefully targeted to encourage individuals, businesses and body corporates to provide for their own risk.

“Ideally, it should recognise the different types of exposure in high and low-rise settings, the compulsory insurance requirements of state and territory legislation and the collective rather than individual nature of the risk.”

Mr Lever says underwriters are actively seeking to avoid strata in the cyclone belt, which is leaving very few options for unit owners.

“We had no one in the Brisbane area insured for flood and we just hope we are not in the same situation when a cyclone comes around,” he said.

“Many [insurers] don’t write business north of the cyclone belt. We are seeing an active withdrawal, with underwriters trying to reduce their exposure. If this was happening in the ordinary housing market there would be an uproar.”

Mr Olsen says it’s difficult to explain the insurers’ reasoning to customers, especially as it doesn’t come as a direct correlation to recent events.

He says it all started with Suncorp’s withdrawal from strata more than 12 months ago, and since then the market has been getting tighter and tighter.

Unlike normal household insurance there is no risk of people being underinsured, due to the compulsory nature of strata.

Under the current guidelines unit owners or developers need to obtain full insurance coverage for their buildings’ market value and then the body corporate requires owners to have at least three quotes before one can be accepted.

But this is becoming increasingly difficult with only two players taking new business.

“If there is nothing else in the market there’re not much you can do,” Mr Olsen told insuranceNEWS.com.au. “We’ve had to explain to clients that there is no other option, and if [their present insurer is] offering renewals you need to take it.”

Brokers are also having to handle clients’ questions as to why the general insurance industry continues to push prices down during soft market periods, only to hit customers with massive increases when the market turns.

Mr Olsen says he can’t see why insurers ignore the logic in providing smaller increases over a longer period of time rather than phasing in large rises which often put clients at risk of being unable to cover the cost.