This article about the requirement to have an insurance valuation done regularly has been supplied by Tyrone Shandiman, Strata Insurance Solutions.
Question: Now the requirement to get an insurance valuation has been removed from the legislation, how often do we need to have a valuation done on the building?
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Answer: Although no longer in the legislation, we recommend you consider valuations every 5 years.
In 2015, the NSW government removed the requirement for buildings to obtain an insurance re-build valuation every 5 years from the legislation. It follows that there is no specific legislative requirement to obtain a valuation at certain periods.
Not-with-standing, Section 160 & 161 of the Strata Schemes Management Act 2015 does in effect require a building to insure for a sum insured that “if the building is destroyed, the building is to be rebuilt or replaced so that the condition of every part of the rebuilt or replacement building is not worse or less extensive than that part when new”.
While there is no specific requirement for frequent insurance re-build valuations – the Act does impose a requirement for the building to be insured for full re-build value and fines and penalties apply for non-compliance of the Act.
The best way to ensure compliance is to seek regular insurance re-build valuations and while there is now no requirement in NSW to get valuations every 5 years (as was the case under the previous legislation), Strata Insurance Solutions still recommends committees consider valuations every 5 years.
The policy covers the owners corporation’s interest and does not actually cover the lot owner (owners need their own landlord’s insurance). There are no exclusions in the policy that specifically deals with this scenario. From the insurer’s perspective, the building is being used for residential purposes.
What are your thoughts on the timing of insurance valuations? If you have a question or something to add to the article, leave a comment below.
This post appears in Strata News #308.
Tyrone Shandiman
Strata Insurance Solutions
T: 07 3899 5129
E: [email protected]
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.
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Do I need to update the valuation done on year 1 by CPI movements annually until it is next due for its 5 yearly valuation?
Hi Tawake
Thanks for your question. We have a free webinar on Thursday with Tyrone Shandiman from Strata Insurance Solutions – NAT: Insurance premium increases in 2023 – Committee considerations. You may wish to attend.
The recording of this webinar is now available and can be viewed here: https://youtu.be/DvRT3pW8C6U
Hi Michael – Thank you for the further comments. Some Quantity Surveyors will provide a valuation for the rebuild value + advise of a recommendation for additional catastrophe cover. In absence of any recommendation for catastrophe cover, a good adviser will provide further advice to an owners corporation to consider cover.
Catastrophe cover is a cover section available on strata policies and provides additional cover on your sum insured if your property is damaged in a Catastrophe (state of emergency) event. Cover is offered because in catastrophe events, re-build costs increase due to higher demand, which increases the cost of labour and building materials. Generally catastrophe cover options are provided to increase your building sum insured by 15% or 30% in the event of a catastrophe (however a more tailored option can be provided if requested). The additional cover is usually offered at a rate cheaper than what it would cost to insure building cover – for example if you insure a building for $1,000,000 + 15% catastrophe the premium will be lower than insuring the building for $1,150,000.
Not-with-standing, Section 160 & 161 of the Strata Schemes Management Act 2015 does in effect require a building to insure for a sum insured that “if the building is destroyed, the building is to be rebuilt or replaced so that the condition of every part of the rebuilt or replacement building is not worse or less extensive than that part when new”
Notwithstanding the above, OC’s treasurer should always select their BSI Value based on at least 90% of the full estimated catastrophe costs value. This information they would normally receive from a Registered Quantity Surveyor. If they only insure for the minimum insurance replacement cost/value as stated by Legislation, they may well be underinsured in the scenario of a catastrophe.
There are various catastrophe clauses in any particular policy wording/PDS so take care to read the additional benefits clauses both for escalated Building costs and Loss of Rent/Temporary accommodation costs. Those clauses are very tricky to understand.