Is Your Strata Insurance Truly Covering All Risks?

Strata properties are a popular form of residential and commercial ownership, offering shared facilities and collective management. While they provide convenience and community living, strata schemes also carry unique risks that can be costly if not properly insured.

Many owners’ corporations (OCs) rely on standard insurance coverage, assuming it’s sufficient. In reality, gaps in coverage can leave both the property and residents financially exposed. This guide examines the risks associated with strata properties, highlights why standard coverage may be insufficient, and provides practical strategies to ensure comprehensive protection.

Understanding the Risks in Strata Properties

Strata insurance is not a one-size-fits-all product. Properties vary in size, age, facilities, and resident profiles, and each of these factors affects risk exposure. Key risks include:

1. Building Defects and Construction Issues

Construction defects or latent defects are faults that may only emerge years after the building is completed. Common examples include:

• Poor waterproofing leading to persistent leaks

• Structural weaknesses in load-bearing elements

• Faulty electrical or plumbing installations

  
  

Why it matters: These defects can result in extensive repairs, legal disputes with contractors, and liability for the OC if units are affected. Standard policies often exclude latent defects, leaving OCs to fund repairs out of pocket.

2. Water Damage

Water-related incidents are among the most frequent causes of insurance claims in strata properties. They can stem from:

• Burst pipes or leaking plumbing

• Roof or balcony leaks

• Water ingress from neighboring units

Financial impact: Repairs can be expensive, particularly when multiple units are affected. Temporary accommodation costs for displaced residents can add to the financial burden.

3. Fire and Natural Disasters

Fire, storms, hail, and other natural disasters can damage both individual units and shared areas. While most policies cover fire, different events, such as flooding or earthquakes, may require specific endorsements.

Pro tip: Review coverage limits carefully to ensure they reflect current building replacement costs and risks specific to your area.

4. Public Liability

Public liability risks arise from injuries sustained by residents, visitors, or contractors in common areas. Examples include:

• Slips and falls around pools or gyms

• Injuries in shared gardens or walkways

• Accidents during maintenance works

Without adequate liability coverage, legal claims can lead to substantial financial exposure for the OC and even individual committee members in some cases.

5. Vandalism and Theft

Shared facilities like gyms, storage areas, and garages can be vulnerable to vandalism or theft. While less frequent, such incidents can be costly to repair and may disrupt resident services.

6. Legal Costs and Governance Challenges

Disputes between owners, or claims against the OC, can lead to legal fees. Standard insurance may not cover legal costs associated with governance, disputes, or enforcement actions.

Why Standard Strata Insurance May Not Be Enough

A standard strata policy typically covers:

• Building structure damage

• Common area liability

• Some natural disasters

  
  

However, gaps often exist in the following areas:

• Latent defects and construction flaws – often excluded from standard policies

• Natural disaster coverage – flood, earthquake, or storm coverage may need additional endorsements

• Temporary accommodation – costs for displaced residents may not be included

• Legal and governance costs – disputes, compliance breaches, and litigation may require separate coverage

• Personal property in common areas – items like gym equipment or office facilities may be excluded

Relying solely on standard coverage can result in unexpected out-of-pocket costs, leaving both the OC and individual unit owners financially vulnerable.

Strategies for Comprehensive Strata Protection

To safeguard residents, assets, and committee members, OCs should adopt a proactive approach to insurance. Here are practical strategies:

1. Conduct a Thorough Risk Assessment

Identify potential exposures across the property:

• Structural vulnerabilities

• High-risk common areas (pools, gyms, parking)

• Environmental risks specific to the location (flood zones, bushfire-prone areas)

Tip: Use professional surveyors or risk consultants to assess building conditions and vulnerabilities.

2. Review and Update Policies Regularly

Strata insurance needs to evolve with the property. Changes in building value, renovations, or the addition of facilities can affect coverage requirements.

Recommendation: Schedule an annual policy review to ensure coverage limits remain adequate and gaps are addressed.

3. Consider Add-On Coverage

Specialized endorsements can fill critical gaps:

• Flood, earthquake, or storm coverage – essential for high-risk areas

• Latent defects insurance – protects against construction flaws that appear years later

• Cyber protection for strata IT systems – increasingly relevant for automated building management systems

• Fidelity insurance – covers fraudulent acts by committee members or contractors

4. Engage Professional Insurance Advice

A qualified insurance broker can tailor policies to your property’s specific risks, compare market options, and negotiate coverage terms. They provide insight into exclusions, claim procedures, and emerging risks.

5. Educate Residents and Committee Members

Unit owners should understand the distinction between strata insurance and personal contents insurance. Awareness reduces misunderstandings and ensures residents take responsibility for insuring their own belongings.

6. Maintain Documentation and Compliance

Proper documentation strengthens risk management and claims outcomes:

• Keep maintenance records and inspection reports

• Document insurance policies, endorsements, and updates

• Ensure compliance with state regulations such as the Strata Schemes Management Act (NSW) or equivalent

Case Scenarios Highlighting Coverage Gaps

Scenario 1: Water Damage Across Units

A leaking roof causes water ingress, affecting multiple apartments. Standard coverage pays for structural repairs but not temporary accommodation for residents. An endorsement covering displacement costs would have avoided significant resident complaints and financial exposure.

Scenario 2: Latent Defects Discovered Years Later

Faulty waterproofing in the building’s foundation leads to recurring leaks. Standard insurance excludes latent defects, resulting in the OC having to fund major repairs. Latent defect insurance could have covered this risk.

Scenario 3: Liability Claim in a Common Area

A visitor slips by the pool, leading to a serious injury. Public liability coverage ensures the OC can manage legal costs and compensation, protecting both committee members and the property’s finances.

FAQs About Strata Insurance

Q1: Does strata insurance cover my personal contents?

A1: No, owners need their own contents insurance to cover furniture, electronics, and personal items within their unit.

Q2: What happens if a resident causes damage to common areas?

A2: Depending on the policy, the OC may claim against the responsible party, but the standard policy may cover immediate repair costs to avoid disruption.

Q3: How are insurance premiums calculated?

A3: Premiums depend on property value, location, construction type, facilities, and historical claims. Add-ons and endorsements will increase premiums but reduce risk exposure.

Q4: Can the OC be held liable for committee decisions?

A4: Yes, committee members can be held personally liable in some cases. Professional indemnity or management liability insurance can mitigate this risk.

Key Takeaways

1. Strata properties face complex and evolving risks.

2. Standard insurance may leave gaps in coverage, exposing the OC and owners to financial loss.

3. Conducting risk assessments, updating policies, and using add-ons are essential for comprehensive protection.

4. Professional advice and ongoing education ensure residents and committees understand their responsibilities.

5. Documenting maintenance, insurance, and governance decisions improves claims outcomes and compliance.

Strata insurance is more than a regulatory requirement—it’s a vital tool for protecting property, residents, and committees. By taking a proactive, informed approach, OCs can Insure Confidence in managing both everyday risks and unexpected events.