- On November 22, 2016
One of the most important aspects of any Insurance Policy is ensuring all information is accurately collected at inception and kept up to date. This is especially important with building values in Strata Insurance Policies, as coverages are built around the Building Sum Insured. If this value is incorrect, it could cause issues in the event of a claim or loss.
It is common for owners to set this figure incorrectly, as they often use the building value of the property. The replacement cost of a building is usually greater than the building value as it is designed to consider various factors that may come into play if a loss occurs. These could include the costs of upgrading the building to current regulations after a loss, removing debris from the site so rebuilding can occur, and covering the loss of rental income incurred. To ensure all these costs are included and up to date, it is recommended that an Insurance Building Replacement Valuation be carried out by a qualified professional at least every 3 years.
The consequences of an incorrectly valued building on a Strata Policy are felt during a loss and the subsequent insurance claim. In the event of a loss, an insurance policy will typically only extend to cover up to the policy limits (not considering any subjectivities of the policy) and the owners will be on the hook for the remainder of the costs. This poses a risk directly to Strata Managers and the council members as owners could hold them directly responsible for the underinsured loss. This is a common scenario that can lead to lawsuits where building owners are seeking remuneration for the portion of the claim that goes unpaid by the insurance company.
The article below outlines what you must consider when setting the Building Sum Insured value.