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Crisis: Queensland property experts warn of strata insurance meltdown

Brisbane's McWhirters Apartments insurance premium chaos sparks calls for sweeping insurance reforms

Urgent reforms are needed to strata insurance laws in Queensland where astronomical premiums are hurting owners and damaging building values much more than natural disasters.

That’s the opinion of property experts such as former Queensland Body Corporate Commissioner,Chris Irons and ARAMA CEO Trevor Rawnsley.

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Mr Irons said strata insurance was likely to be a major State Government election issue in October.

“North Queensland will be where the state election is won and lost,” Mr Irons said, “and if someone up there takes a really strong stance on a way to fix insurance that could be the difference between winning and losing at this point.”

Chris Irons, Director of Strata Solve,

His comments follow an adjudicator’s order from the Office of the Commissioner for Body Corporate and Community Management on February 2, to allow the body corporate for the iconic McWhirters Apartments in Brisbane’s Fortitude Valley to make emergency expenditure for their compulsory building insurance.

The insurance cost $1.2 million, with a $1 million premium issued by Lloyd’s of London through brokerage firm AB Phillips, as well as associated fees, taxes and charges.

McWhirters Apartments is a 114-lot scheme located at 270 Brunswick St, Fortitude Valley. The building originally housed the McWhirters department store, constructed in four stages between 1899 and 1929 and is heritage-listed. It was insured with CHU but in December 2023, CHU advised that they would not offer a renewal.

The body corporate manager’s insurance broker, MAI, sought quotes from other Australian insurers but due to the building’s claims history and known defects identified in a building inspection report, the Australian insurance market was unwilling to accept the risk.

Mr Irons said the McWhirter’s premium had tripled, and that Lloyd’s of London, was “shorthand for the last resort in insurance”.

“It’s typical of what is happening in a lot of bodies corporate these days,” said Mr Irons, who now runs Strata Solve, Queensland’s leading strata dispute resolution and problem-solving firm.

“In this particular case it’s especially noteworthy because we’re not talking about a building, say at Magnetic Island that is exposed to cyclones, or one at Graceville or Yeerongpilly that is exposed to floods. This is a century-old brick building smack-bang in the middle of an urban environment whose premiums went up three-fold and they had to seek insurance in a great rush.

“The order showed that the body corporate knew there were defects in the building, hadn’t corrected them, and then couldn’t get insurance, and that is a scenario that gets repeated over and over and over.

“It’s going to cost bodies corporate so much money to address their responsibilities and they have no option to not address them by law. But then you’ve got owners who won’t pay, or more accurately can’t pay for repairs, so they vote ‘no’ to spending on maintenance and then when it comes time for insurance renewal the insurer says, ‘you’re too much of a risk, go to Lloyd’s of London.’”

Under Queensland strata law, insurance for common areas is compulsory, regardless of the expense.

Mr Irons said an obvious solution for strata woes was to have State Government-controlled and initiated insurance for strata schemes.

“If the government is going to say ‘we 100 percent require you to be insured – there are no options about that’ – then fine, it’s time for them to cough up and support that insurance.

“Alternatively, the government could give bodies corporate the option of not being insured and allow them to come up with their own system – for instance, they might put aside extra money in say a contingency/slush fund and that is their protection.

“In the McWhirters case if they only set aside a fifth of that $1 million premium that is still $200,000, and that would cover a few repairs which might then allow them to go back to other insurers with confidence that they could get cover.”

Mr Irons said it was common to hear of 20 to 30 percent increases year-on-year when it came to strata insurance premiums.

“North Queensland presents some of the worst examples of this but Gladstone and Bundaberg are reporting it too. I’ve heard of buildings in Brisbane struggling to be insured and it’s got nothing to do with weather, it’s all about maintenance.

“In some cases, I’ve even heard that a building can’t get insurance because it’s got short-term letting on site.

“In one extreme case, I heard of a building that couldn’t get cover because it was student accommodation and it was feared the students might be plugging in a whole range of appliances – computers, kitchen appliances, phones – and they might start a fire.”

Mr Rawnsley said anywhere north of Bundaberg only had one insurer offering completive prices for cover on strata buildings.

“It’s an uncontested market. There are other insurers in that space, but they are totally uncompetitive,” he said.

“With the situation at McWhirters, it seems North Queensland is creeping into Brisbane. What’s been happening at McWhirters has been happening in North Queensland for years.

“We followed a townhouse complex on the beach in Mackay that went from $8000 for insurance annually to $96,000 in just three years. The levies become so high that people end up selling, and it adversely affects the price of real estate because the insurance rates are so high.”

Mr Rawnsley said ARAMA had long called for sweeping insurance reforms.

ARAMA CEO, Trevor Rawnsley

“At the moment there is stamp duty on insurance and GST on insurance, effectively tax on tax,” he said.

“So, we’ve called on the Federal Government to remove stamp duty when it’s compulsory to have insurance. That accounts for 10 to 12 percent of the premium in tax. We’ve called on the State Government to remove GST on that insurance which accounts for another 10 percent.

“We’ve also suggested that in areas where the insurance sales are uncontested, then any agents for insurance brokerage firms, such as body corporate managers should not charge a percentage of the premium as a fee. Some have been charging a 25 percent fee, so it’s in their interests to keep the price of premiums rising.

“For some body corporate managers insurance premiums make up a third of their income. Instead, we say they should be paid by a fixed fee or an hourly rate commensurate with their effort because that is much fairer.

“If those measures – the elimination of stamp duty and GST, and the elimination of percentage-based fees for brokers – were introduced there would be a huge reduction in strata insurance premiums.”

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