Insuring the new generation of housing

Insuring the new generation of housing | Insurance Business

Insuring the new generation of housing

Strata insurance has traditionally been seen as a small niche in the Australian insurance industry, but it has burst into the mainstream in recent years. IB spoke to CHU’s Bobby Lehane to find out more about this growing segment

The history of strata insurance in Australia is relatively short, dating only to the late 1970s, when new strata legislation introduced mandatory insurance requirements, first in NSW, then across Australia. During this period, there was a move away from company title units, as they were not a desirable risk from a banking and mortgage perspective. Additionally, the 1960s saw an increase in the number of new and larger apartment blocks aimed at providing more housing. Insurance companies were forced to develop new products to accommodate this largely uncharted territory.

Residential strata insurance was soon followed by commercial strata and community title (i.e. community association) policies as both the strata industry and the corresponding strata insurance industry began to grow rapidly. In 2018, strata insurance is distributed both through intermediaries (brokers and strata managers) and directly (mostly smaller self-managed townhouses, duplexes and small unit blocks).

According to Bobby Lehane, CEO of CHU, strata is set to become an increasingly dominant force in the Australian insurance industry over the coming years. “We’re very eager to offer solutions for modern living,” Lehane says.

“We’ve always looked further than traditional insurance, aiming to provide customers with broader strata services as the market shifts.”

The rise of strata living

While traditionally seen as a niche filed, the increasing rise of strata living around the country suggests that it’s a key area of opportunity, especially for brokers. Apartment construction shows no signs of slowing down, so this is a trend that should continue for the foreseeable future.

Currently, strata living is the fastest- growing form of property ownership in Australia: 4.5m people already live in private attached properties, most of which are strata titled, across the country. It is estimated that more than 50% of the NSW population will be living or working in strata within the next 25 years. Other states and territories are likely to see similarly rapid growth in the coming years.

Lehane believes there are three key reasons for the rise of apartments: location, cost and efficiency of space.

“It’s a cliché to say it, but it’s location, location, location,” he says. “As you might expect, apartments are highly concentrated in cities, with 90% of approvals in Sydney, Melbourne and Brisbane.”

People are understandably eager to live close to their work, or they might be seeking a specific lifestyle that the suburbs can’t provide. However, suburban areas still appeal to many; apartments are increasingly being built in inner and middle suburbs close to transport, amenities and employment centres. For families looking for an integrated approach to living, working and lifestyle, such apartments can be an attractive prospect. Additionally, stand-alone houses are often built in greenfield areas, where the surrounding infrastructure could take several years to catch up.

“The digitalisation of strata insurance has begun, but it’s still lagging behind many other general insurance lines. This will need to change, as the demand for more tailored, flexible insurance policies is growing” - Bobby Lehane, CHU

Another key reason for the rise in strata living has simply been affordability; apartments are significantly cheaper than houses – the median price of apartments is 30% lower than houses. Though house prices have seen a reduction in recent months, for many, the cost of stand-alone housing is prohibitive. While apartments don’t offer the traditional Australian Dream of a quarter-acre suburban plot of land, complete with backyard, they do provide an affordable alternative.

This leads to the final reason for the shift to apartment living: a lack of space in desirable areas.

“Apartments take up less room,” Lehane says. “That’s a significant consideration in sites where space is an issue, such as inner cities. Land can be used much more e­fficiently to house a greater number of people.”

The future of strata insurance

Given this explosion of strata living, its likely future growth and the complexity involved in obtaining the right insurance, the strata segment offers great potential for brokers.

Previously, the space was dominated by a handful of specialist strata brokers, but the growth of strata living has led to an increase in the number of competitors – underwriting agencies and insurers alike. There has also been an increase in the number of general insurance brokers expanding into strata risks.

“CHU developed Australia’s first specific product for strata insurance back in 1978,” Lehane says. “There have been tremendous changes in the way these products are administered since then, of course, but we still work to stay at the cutting edge of the market.”

The complexity of strata insurance and legislation presents an ideal environment for brokers to work alongside their clients, aiding them with the process. Brokers entering the strata space need to be seen as trusted experts in strata – not only in policy and claims service, but also in the specifics of legislation governing strata in each state. This will aid in guaranteeing a higher standard of customer service and care, enhancing the reputation of the industry in the long term.

Moving ahead, the shift to brokers providing strata insurance will continue to accelerate. Smaller self-managed schemes will increasingly purchase their insurance online, but in light of the increasing complexity of schemes, strata insurance will continue to be an ideal avenue for brokers to aid their clients.

With a wider array of strata insurance providers on the market than ever before, it can be easy for brokers to be overwhelmed by choice. But there are a number of key criteria brokers should keep in mind when choosing a provider.

Lehane advises brokers to choose an insurer that has a strong local presence and knowledge – including o­ffices in each state with national underwriting and claims support – as well as scalable services for catastrophe support, significant digital support, and a panel of assessors and builders who are also strata specialists.

Digital support is one area where Lehane feels there’s room for improvement, given the increasingly internet-savvy public and a growing expectation for insurers to provide round-the-clock availability.

“The digitalisation of strata insurance has begun,” Lehane says. “But it’s still lagging behind many other general insurance lines. This will need to change, as the demand for more tailored, flexible insurance policies is growing.”

He outlines a number of other factors that he sees as indicative of the quality of a strata insurance provider.

“It is essential that brokers understand the relationship between the owner’s corporation/ body corporate and strata managers,” he says. “Additionally, they should have a relationship with the property manager or building manager. And perhaps most importantly, brokers need to understand the unique needs of an owner-occupier, owner-investor and tenants.”

CHU Underwriting Agencies [CHU] created the very first strata insurance plan in Australia and started trading in Sydney in 1978. Today, almost 40 years on, CHU has grown to become recognised as the world’s leading strata insurance specialist, underwriting more than 100,000 schemes across Australia.