Strata insurance expert shares tips for property owners

As property owners bear the brunt of audits and rectification costs caused by building defects and combustible cladding, they’re also facing insurance obstacles.

While some insurers have refused to cover buildings with defective cladding, others are increasing premiums and or have applied exclusions to policy coverage.

We spoke to CHU insurance expert Steven Tchepak who provided some advice.

“Strata insurance is compulsory in Australia and needs to cover the building for full replacement value. Therefore there’s an argument that a strata insurance policy that specifically excludes parts of the building such as cladding could put them at risk of not meeting legislative requirements.”

He said people need to be aware of policies with exclusions and endorsements that exclude cladding from being covered.

“When it comes to cladding, some insurers are willing to offer terms on all types of cladding. Then you have insurers who are prepared to offer insurance for buildings with cladding but they may apply exclusions restricting policy cover. Other insurers may not be willing to offer terms for buildings that have any cladding whatsoever.

“As an industry leader that’s been in this space for more than 40 years, CHU look to support the strata industry by offering insurance solutions wherever possible. If all strata insurance companies pulled out of the market and didn’t offer cover for buildings with cladding, you’d have the potential for a lot of uninsured buildings.

“It’s a terrible position for unsuspecting owners to be in, having bought into their dream apartment and then being hit with the news their building has defective cladding and that they have to fund it. We would certainly support reform and legislative action across the country, with action similar to what the Victorian government has committed to being a step in the right direction.”

Mr Tchepak also provided tips for potential buyers.

“Exercise due diligence when buying into an apartment building and conduct a search of the building’s books and records so you know what you’re buying into.

“If the building does have cladding, check what the owners corporation are doing about it and ensure the insurance policy is reviewed to see what is and isn’t covered.

“There are many different types of cladding with varying degrees of combustibility or flammability. Given the publicity cladding has received, particularly since the devastating Grenfell Tower tragedy in 2017, the presence of cladding on a building can be considered a material fact which an owners corporation needs to  disclose to a strata insurance company.”

If you would like more information relating to a specific situation, ask a question on stratafaq.com.au. Find out how to protect your property from unexpected costs related to building defects with a free guide on the lessons learnt from the Opal Tower and Mascot Towers saga.