Insurance on the UP!!
Body Corporate owners may be aware of the recent Treasury announcement of an investigation into the significant challenges insurance is placing on multiple unit complexes. This reality is evidenced in virtually every Body Corporate budget, where insurance growth in excess of 20%-30% per annum is not uncommon.
The premium growth often linked to policy terms being tightened has been fuelled by a number of key drivers, including:
- The obligation to insure for the full insurable value (i.e. replacement value for complete demolition and rebuild). With construction costs having rocketed over the past two years from anything between 20%-30% the cost to demolish and rebuild increases by a similar amount, and ergo your premiums.
- Climate change and other catastrophic weather events are driving both the volume of claims and the cost to insurers and owners. This is a secondary and significant driver.
- The Body Corporate market in New Zealand has unfortunately an extremely limited pool of insurers and a number of these are imposing unusual restrictions and categorisation, whether in terms of seismic status, occupancy mix, limits per region, aluminium cladding and fire systems.
The Government has also assisted in the escalating insurance with its changes to EQC and fire service charges. The October 2002 increase in EQC cover to $300,000 per unit added an immediate $180 plus GST per to every unit premium. Fire service levies had not long increased prior to that and are now due to increase again. From 1 July 2024 the residential risk per unit will increase from $106 per unit to $119.50 per unit plus GST. Whilst not overly significant in dollar terms ($13.50 plus GST for a 40 unit complex) this is simply another insurance cost increasing by in excess of 10%.
Treasury has invited submissions from parties associated with community owned properties who have experienced insurance challenges and BBCL has contributed its views to the Treasury invitation. Owners should be free to share their own experiences as invited by Treasury.
Take Away
Insurance will remain the largest element of the Body Corporate annual budget for most Body Corporates. International pressures from underwriters and continuing cost escalations are likely to increase pressure on premiums.
