Strata premiums have started the new financial year with increases nationally of about 15-20%, while limited options are available for riskier buildings, a Honan quarterly report says.

Claims inflation, rising building valuations and insurers applying higher rates after prolonged periods of losses are driving the gains. The increases include buildings classed as low-hazard commercial occupancies, or properties without a challenging claims history, defects, or combustible cladding.

The market is much tougher for medium-to-high hazard commercial properties, those with outstanding defects, a challenging claims history, combustible cladding or requiring coverage exceeding $50 million.

“Depending on the details provided in the submission, particularly regarding defects and cladding, we may need to explore international insurance markets where premium increases of over 100% are common,” Honan says.

“This means it is essential for strata managers and owners to work closely with their insurance broker, taking a proactive approach to address any existing issues and providing regular and detailed updates to help secure local coverage.”

Honan says occasional reductions in premiums for desirable “vanilla” risks in preferred locations have been observed and new entrants and the return of some underwriting agencies have allowed it to approach more markets and optimise terms for clients.

The escalating costs associated with construction materials have raised concerns around underinsurance in strata properties when building sum insureds haven’t kept pace.

“In the event of a claim, the base premium on a policy can be quickly eroded by claims expenses as well as the policy commission, therefore, the profit margin is very thin or non-existent,” Honan says.

“As such, insurers are continually increasing base premiums or reluctant to quote properties without a recent insurance valuation or change to the insured values.” 

Insurers with eligible risks are joining the Cyclone Reinsurance Pool, which aims to address the effect of rising premiums in Northern Australia.

Honan says the impact will vary depending on the location, but CHU has indicated savings of up to 37% can be expected for properties in highly exposed cyclone areas.

“It should be noted that the underwriting methodology used by the pool has not been released. Reductions in premiums are not assured and underwriting rates and performance of the scheme will be followed closely in the coming months and years,” it says.