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    Dear Jimmy

    Last November our Strata property etc were valued by a qualified insurer, after the owners agreed to such valuation at the AGM in October.

    Our buildings were valued at $8,270,00 rising to $9,100,00 within the next 24 months. At the AGM owners agreed to a value of $9,660,000.

    Last month the Strata Manager paid the insurance premium for 2014-2015. The buildings were shown at a value of $10,046,400.


    We have queried our Strata Manager who has refused to use the value of $8,270,00 for the following reason:

    “It is not possible for the owners to insure at $8,270,000.  This was the valuation figure at 8/11/2013.  Should there be a TOTAL loss the owners would be under insured as this does not make any allowance for increases in cost between date of loss and increases expected in the approximate 2 years of reconstruction. That is why ALL valuation have a calculations for a rise in costs between the valuation date and the estimated time to reconstruct.”


    We were under the impression that it was the OC had the right to set insurance values.


    The reason for the EC to request the review is that our strata property would never been rebuilt the way it is now because of the type of buildings (mainly townhouses spread over a large land area situated in the city centre and 5 minutes walk to the beach).

    Question: does the strata manager (entitled to commission on the insurance) have the authority to refuse the EC request?



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    1) I think Jef’s issue was overinsurance not underinsurance.

    2) The “underinsurance clause” you describe applies only for a partial loss, not a total loss. For a total loss, Insurers will pay up to the Sum Insured. And why wouldn’t they, you paid the premium for that amount.


    Your best bet is to get the facts … a copy of the valuation letter and a copy of the insurance renewal … from the SM.

    Certified Valuers know the Strata Act requirements (s.82 of the Act and s.12 of the Regulations) and usually state the values in that manner.

    1) Building replacement, X.

    2) Removal of debris, currently about 14% of X.

    3) Professional fees, currently about 11% of X.

    4) Subtotal, X * 1.25

    5) 24-month uplift, currently about 10% of subtotal.

    6) Total Valuation, X * 1.375.

    For (5), the Regulations only require an 18-month uplift, but I think someone is assuming (probably rightfully) that the valuation will be obtained (on average) 6 months before renewal, or that your building will burn down (on average) 6 months into the period of cover.

    It sounds to me like your OC wanted to cover both of those assumptions, in which case the Sum Insured of $9,660K would be (cautious or) reasonable.

    The SM does not have the right to increase the amount above what the OC instructs them.

    But remember that Insurers also include other benefits in their policies, like Catastrophe insurance (e.g. Canberra bushfires, labour and materials had to be brought in from interstate at increased cost).

    Maybe someone is (wrongly) adding that to Sum Insured.



    Must admit I don’t agree with some of Cosmos comments.

    The one I totally agree with is that the insurance is for the strata you have NOW not the one you would like.

    My issue is that if you pay for a valuation for insurance purposes that is what the property should be insured for (not some future valuation). Strata regulations generally require a valuation every 5 year (QLD anyway) and in the intervening years the value is increased by reference to an inflation for houses that the insurance company use.

    Also if you insure the strata for $8,270,000 and you have a total loss the insurance is obliged to pay you $8,270,000 but if the rebuilding cost more than that, that is the strata problem. If the rebuilding cost less the insurance will pocket the difference.

    The insurance will reduce the claim is if the strata is under insured and then they will reduce the payment by the % that the Strata was under insured by.


    Hi Jeff,

    You may have this all covered but the OC needs to understand the possible consequences of insuring at a value other than what is determined by the valuer.  This will be specific to the policy with the insurer but according to my understanding of the way it works either “under insuring” or “over insuring” can result in the OC being out of pocket.  You need someone to understand your OC’s specific policy contract.

    You take out insurance for the building you have not the building you think you should have. An insurance policy is usually for the property where it is, as it is and unless there is some “legal or other” requirement that it not be rebuilt ‘where it is and as it is’ the insurance company may not cover you. As your OC know of these “legal or other” requirements they are something the insurance needs to be made aware of and accept.  

    You state “our strata property would never been rebuilt the way it is now” and that seems to be one of the arguments the OC is adopting for picking a valuation other than that of the valuer’s.  Does the insurance company know and accept that the “strata property would never been rebuilt the way it is now”?  

    From what you have stated I think the Strata Manager is trying to do the right thing by the OC.  If the OC under insurers and there is a total loss the insurance company would be well within its rights to pay less than the agreed under insured value.  Your OC has to make sure it has made full disclosure to your insurance company that in the event of total loss the OC intends to build different structures at a different cost, this is so the insurance company can factor this in to the premium it charges. 

    As as really rough example, if you under insured for only $8,270,000 (ie approx 82% of $10,046,400) and the building suffered a total loss the insurance company would probably be entitled to, at best, pay you only $6,781,400 (ie 82% of $8,270,000). In the worst case the insurance company might be entitled to pay you less than that arguing that the OC didn’t make a proper disclosure.

    The above is all my opinion, but the OC needs to really be sure of the consequences of what it is doing and its obligation to disclose all relevant facts to the insurance company.




    @Jef said:

    Question: does the strata manager (entitled to commission on the insurance) have the authority to refuse the EC request?


    NO he doesn’t. You tell him what to do not the other way around because he works for the Strata who pay him. He is their to advise you on the strata law, and it up to you whether you take his advise.

    If you insist he does something illegal (this is not the case here) he can refuse but he cannot do something instead.

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