Are you insured for a catastrophe?
Catastrophe insurance can be a little misunderstood when it comes to strata insurance. In this short article, I will explain this type of insurance and how it works.
When you insure your strata property, the first section of this policy is known as Insured Property or Property Loss or Damage, or similar in most strata insurance policies. Strata Titles Act 1985 WA (STA) s97 Required Insurance, outlines how you must insure your Property, referred in the STA as Insurable Assets of your strata for replacement value. If you refer to this section of the STA it describes replacement value.
When you insure for replacement value as required by the STA it also requires the strata to insure against many event perils. Many insured event perils are such things as fire, storm and earthquake and, whilst these type of events are already covered by the first section of a strata policy, these events can also be incurred in a declared catastrophe event. So whether the event leads to a catastrophe or not they are insurable events and in all cases you need to insure your property for replacement value.
For Catastrophe insurance to be activated two things must occur;
1. The Catastrophe must be a declared event by the Insurance Council of Australia and a code will be issued and used by all the insurers e.g. recent 2021 Wooroloo Bushfire; Newcastle Earthquake; Perth Hail Storm March 2010; and
2. The Insured Assets (Building and Common Contents) sum insured under the Insured Property is insufficient to rebuild the property, due to escalation of costs increasing as a result of the catastrophe.
As suggested above, catastrophe insurance provides protection for the strata against the Insurable Assets being not insured for replacement value, due to the escalation costs in rebuilding. The difference in replacement value is caused by a demand surge due to a lack of available resources and/or products in the market e.g. bricks; tradesman.
In addition, the cost of finding temporary accommodation for Lot Owner’s also increases in these times of need and catastrophe insurance responds to additional benefit limits for the increased costs in accommodation.
Overall escalation costs following for such events increase the normal replacement cost in the average by approximately 30%, as reflected in catastrophic claims sustained by the insurance industry over many years. Remember catastrophe insurance is not a top up against underinsuring or incorrect valuations or government charges, such as GST, where short falls may occur.
Catastrophe insurance is important to have as it helps your strata to comply with the requirements of the STA by ensuring that even in the event of a declared catastrophe that the Strata Insurable Assets are insured for replacement value as the STA requires.
General Disclosure; This article is prepared for informational purposes only, and is not insurance, financial or legal advice and should not be relied on as insurance, financial or legal advice. You should consult with a qualified insurance or legal advisor. PSC Property Lync Insurance Brokers is an Authorised Representative (AR 1235681) of Professional Services Corporation Pty Ltd (AFSL 305491).
This article was brought to you by PSC Property Lync