Residential buildings that also house tobacco shops are struggling to find local insurers willing to offer strata cover, and occupiers say premiums from offshore providers cost triple their previous arrangements.

Firebomb attacks have hit 100 tobacco stores amid a gangland turf war.

A resident in Melbourne’s north told ABC radio two brokers acting for the body corporate at his 80-unit building were denied insurance because a tobacconist is among six commercial shops at street level.

“As a result of that shop that’s been there for about 12 months, we’ve been unable to renew our standard strata insurance for building this year and we’re essentially forced outside of the Australian insurance market,” the resident called Michael said. 

“We went through two different insurance brokers. They approached basically every strata insurance company in Australia … and not a single one of them were open to insuring our building.

“We’re now on the international market under what’s known as a special risk policy and that’s tripled the cost of our insurance from approximately $50,000 a year to approximately $150,000 a year.”

The body corporate was reluctant to seek an exemption from the requirement to have insurance, he said. “We’ve got residents living above that shop, including families, and a firebombing in that building would be just catastrophic.”

Victoria Police has been warning landlords on the risks of leasing stores to tobacconists, saying it could void cover. 

Howden Re Asia-Pacific region executive Adam Matteson told insuranceNEWS.com.au that insurers rejecting buildings housing tobacconists is “happening more and more”.

He estimates insured property losses from tobacconist fires have probably passed $20 million.

“Last year, it had pretty much been isolated to Victoria, but it has now spread into some of the other states, definitely,” Mr Matteson said. “From an appetite perspective, these losses are now not fortuitous. This a business model for organised crime – it has become a situation that’s systemic and it’s outside of the capacity for the insurers to offer insurance.

“It is more a case of when, not if, and so it has become a situation where the insurers just are obviously finding it difficult to actually price risk.” 

Regulation and legislative change are needed to restore insurance capacity, he says.

“It does have to have some type of collaboration between law enforcement, government and the insurance industry.

“This is an issue that is going to become more prevalent as we move into more mixed-use strata. As governments look to optimise development, there’s going to be more mixed use, where you’ve got commercial and residential all together in the one building. It is an issue that is not going away.  

“It’s something that really does need to be addressed, because until then that’s going to be very difficult for insurance capacity to work through.”

Australian Association of Convenience Stores CEO Theo Foukkare told ABC radio yesterday that premiums were already up about 40% for many shops, and he urged the Victorian Premier to fast-track legislation to introduce licensing and set up a taskforce to stop the tobacco wars.  

“This really comes back to the excessive policy settings that are in place around tobacco excise, which have created a black market, which is thriving being run by these crime networks,” he said. “The government has a role to play here in really addressing this before you’ve got legal retailers who employ Australians that ultimately can’t insure their asset.”

Mr Foukkare said it was “only a matter of time” before more insurance companies began rejecting policies for stores and apartments near tobacco shops.

“If you can’t even insure it ... because of the fact that there aren’t tight regulations in place to protect the community, it’s a real concern.”