Hidden insurance issues strata committees shouldn’t ignore

What gets missed is often something assumed to be covered. Under the Strata Schemes Management Act 2015, schemes in NSW must insure the building, common property and public liability. While most committees cover the basics, some issues can be overlooked without careful oversight. Lesser-known or easily missed exposures can cause serious trouble down the line, so it’s important to stay informed.

At All Suburbs Strata Management, we bring over 40 years of experience in residential strata management in Greater Sydney, Nepean and the Central Coast. We provide clear guidance, reliable service and proactive support to help strata committees meet their obligations with confidence. We stay across every legislative change and compliance detail, and we know where committees often let things slip through the cracks. Here’s what to watch out for.

According to the Strata Schemes Management Act 2015, strata insurance must be based on the full replacement and reinstatement cost of the building, not just the market value. This is reinforced under the Strata Schemes Management Regulation 2016. Despite this, many schemes still rely on outdated figures or informal estimates, which will leave them underinsured in the event of a disaster.

Professional building valuations are essential, and they should be carried out by a qualified quantity surveyor or valuer. These reports determine the true cost of rebuilding, including demolition, debris removal, council compliance and professional fees. Without an up-to-date report, a scheme could fall short of legal requirements and face serious delays or a reduction in its payout.

With building costs rising so quickly, a policy that seemed accurate a year ago may now fall well short. Labour shortages and fluctuating material prices continue to push costs higher, yet insurers typically do not adjust the sum insured to reflect these changes. Regular valuations help ensure the committee is not left managing the fallout of an underinsured claim.

It’s easy for confusion to arise when it comes to what’s covered by the strata insurance policy and what falls to the lot owner. In NSW, the owners corporation is responsible for insuring common property, but anything inside the lot that isn’t part of the building structure is usually up to the owner to cover through their own contents or landlord insurance.

Often, uncertainty arises when claims involve internal items such as carpets, curtains, blinds or floating floorboards. These are not typically considered part of the building structure and may fall outside the scope of strata insurance. Unless specifically included in the policy or defined in the strata plan as common property, they are likely to be the lot owner’s responsibility.

Renovations can complicate things. If a lot owner makes changes inside their unit, especially structural work or anything involving plumbing or electrical systems, and fails to get formal approval, it can affect insurance. Section 108 of the Strata Schemes Management Act 2015 requires approval before altering common property. If the changes are not disclosed or recorded properly, there is a risk that related claims will be declined.

Insurers must be kept informed when a building’s use or risk profile changes. If a strata committee fails to disclose key changes like short-term letting arrangements, significant renovations or long-term vacancies, it can lead to claims being denied. These situations affect the level of risk, which insurers rely on when assessing a policy at renewal or application.

A change in how the building is used can also trigger problems. For example, if a residential building gradually takes on more commercial tenants or becomes mixed-use, the insurance arranged for a purely residential block may no longer be appropriate. Without a reassessment of the policy, the scheme may be left exposed.

The law requires strata schemes to disclose known issues under the Insurance Contracts Act 1984. If problems like water ingress, cracks or other defects are left out, that can be seen as a breach. Even if the issue doesn’t seem connected, it can still lead to a reduced payout or the claim being knocked back.

Some committee members may not realise that Office Bearers’ Liability is not always included in standard strata insurance. Even when it is, the cover may not be enough to meet the actual risk. In NSW, this type of insurance is designed to protect committee members if they are held personally responsible for decisions made while carrying out their role. Without it, individuals could end up facing the cost themselves.

Legal problems can come up when no one expects them. If a dispute arises with a lot owner, contractor or someone else, and the right insurance isn’t in place, the scheme might be left to cover legal fees and settlement costs itself. These costs can add up quickly, especially if the issue drags on or becomes complicated.

When committees take on a hands-on role in managing funds or legal disputes, the risk becomes even higher. This is why the guidance of an experienced strata manager or legal professional is so important.

Strata schemes need to review their insurance regularly and stay on top of changes in both operations and legislation. Committees should always seek guidance from their strata manager and work with insurance brokers who understand the complexities of strata.

At ASSM, we specialise in compliance and can guide a thorough policy review tailored to your building.

Our team offers clear, practical advice to help you navigate insurance and make informed decisions that protect your scheme.

Looking for a dependable strata manager? ASSM has over 40 years of experience in residential, community, commercial and industrial properties. If your current manager isn’t meeting expectations, get in touch with our professional team today. We’ll make the transition simple.