An owners’ corporation has lost a dispute over an 80% premium rise on its broker-arranged strata policy, after arguing the increase was made “without justification”.

The owners’ corporation demanded that Chubb reduce its premium, which was raised to $60,508 at renewal in May last year.

Chubb said it “correctly” calculated the premium, explaining the increase was driven by the significant amount previously paid in claims settlements.

The owners’ corporation made a claim in July 2020 for water damage suffered by one strata lot owner, and Chubb settled it for $339,339.

The insurer said the premium increase was largely due to the performance of the risk. The owners’ corporation policy was an “underperforming” account, Chubb said, pointing out the corporation made a further claim in 2022 for storm damage. It added that more loss was incurred while repairs were conducted over the 2020 claim.

Chubb said the loss ratio over the eight-year tenure of the policy was 587%, well above the target 100%.

The insurer provided an excerpt from its underwriting guidelines to the Australian Financial Complaints Authority, which handled the dispute. The guidelines showed the rating structure considered operating costs and expenses; agent commissions; reinsurance costs; and loss ratio requirements and adjustments based on actual loss ratio performance.

Chubb said it accepted the renewal in good faith to preserve its relationship with the owners’ corporation’s broker, despite the losses it had incurred on the policy.

AFCA says the information shows, on balance, that Chubb correctly applied the premium increase.

“The insurer is entitled to price in the value of the claims costs it has incurred in setting the premium,” an ombudsman said.

“While I acknowledge the complainant’s concerns in relation to the percentage increase compared to previous years, I am not satisfied it shows the premium has been increased without justification.

“I am satisfied the premium increase is based on ratings factors and weightings applied by the insurer. There is no persuasive evidence to show the premium was increased incorrectly.”

AFCA notes the broker’s renewal recommendation said the strata market was experiencing “considerable” rate rises and cover availability was declining. Major losses have forced insurers to raise premiums, with strata policies recording increases of 10%-20% or more on properties with no outstanding claims or defects.

The broker’s recommendation showed cover was refused by three other insurers due to the owners’ corporation’s claims history.

“The information from the broker supports the position that the costs of providing strata insurance had increased when the renewal quote was provided, which is a factor in the setting of premiums outlined in the [product disclosure statement],” AFCA said.

Click here for the ruling.