Is your strata property insured to the correct value?
When it comes to insuring your strata titled property, or any property for that matter, coming up with the correct figure can seem daunting. Many people think that the construction cost is the best figure to use when insuring a property. However, the construction cost will not provide an appropriate value as it does not include all of the required costs you need to be insured for.
The Body Corporate and Community Management Regulations requires that a body corporate must be insured for full replacement value, regardless of the original construction cost, to ensure you are properly insured for an insurable event. The insurance must include for; escalation, demolition/removal of debris, re-design fees, consultant fees and local authority application fees. These are all significant costs over and above the construction cost.
The regulations also require that a valuation be carried out a minimum of every 5 years.
Why do I need an Insurance Valuation?
An Insurance Replacement Valuation (IRV) ensures coverage for the building replacement if it is destroyed or damaged beyond repair. The insurance value must cover the amount it would cost to rebuild the entire building, or where damaged; replace elements. An IRV also takes into consideration expenses for removing debris and costs for professional contractors/services that may be needed to rebuild, replace or repair. This valuation is taken to insurers to be used for negotiation of premiums and coverage amounts.
The insurance required by a body corporate is determined by the specific regulation module the scheme is formed under; either standard format or building format plans. Sections 176 to 190 of the Body Corporate and Community Management (Standard Module) Regulation 2008 outline the types and extent of insurance requirements for different assets. Section 181 outlines the duty to seek an independent valuation every 5 years and obligation of owners to contribute to the administration of these premiums.
There are many additional factors affecting the replacement costs of a strata scheme, these include:
- Availability of labour
- Building costs
- Quality of finish
- Shared facilities
Poor estimation of these costs could result in schemes being under‐insured, and subsequently, owners being unable to afford to replace their building. The small savings made by seeking lower premiums on an under‐insured scheme are heavily outweighed when it comes time to managing your risk and replacing a building.
Importance of an accurate Insurance Valuation
- Legally compliant
- Insured correctly to full-replacement value
- Pay correct premiums
- Protect property values
- Peace of mind
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