Capacity problems are affecting the higher end of the strata market despite rising premium rates over the past couple of years that have improved the outlook for insurers, a Brisbane broker says.

Strata Insurance Solutions MD Tyrone Shandiman says the issues particularly affect buildings with property-associated covers of at least $300 million, and new capacity providers are needed in the market.

“Currently, Chubb is the only player able to provide an insurance solution for these strata buildings offering 100% capacity. However, we’ve recently encountered challenges with their capacity,” Mr Shandiman told insuranceNEWS.com.au.

The insurer reduced its capacity to 70% on one high-rise client in Brisbane and has declined to quote on several large buildings exceeding $300 million, he says, while options are limited for gaining co-insurance from other providers.

“In Melbourne, we’ve faced similar challenges, with CHU, the largest strata player in the market, also declining to offer cover on a property. This trend suggests that the situation is not isolated but rather indicative of a systemic capacity shortage,” Mr Shandiman said.

Reasons for the lack of capacity on some of the high-rise buildings are unclear, he says, with many properties more resilient to natural perils compared with smaller developments, and with the strata insurance market having responded to cladding and defect issues.

“Given that rates have increased by at least 50% since 2022, now is a profitable time for insurers to enter this market, particularly with the strong resilience of high-rise buildings to major storms.

“The risk profile for these properties continues to be attractive, yet we face a lack of competition and capacity.

“As such, there is a pressing need for a new entrant to support growth and restore competition in the high-end strata insurance space.”

Higher-density living is expanding rapidly amid increasing demand for housing, with an estimated 50% of Greater Sydney’s population expected to live in strata schemes by 2040.

An Insurance Council of Australia report last year noted there is a mandatory requirement across jurisdictions to purchase strata insurance at full replacement value.

Cladding and defect issues have affected the market internationally over the past decade, highlighted by the Grenfell Tower fire in London in 2017, the evacuation of the Opal Tower in Sydney in 2018, and the collapse of a Miami building in the US in 2021.

A Strata Community Association report published in 2023 estimated the size of the Australian strata insurance market at $1.3 trillion.