Often an insurance premium increase for a strata property will be passed on to the responsible lot owners and tenants, but this is a short-term fix that does not address the root cause of the issue. A prudent Strata Company/Owners Corporation will assess the associated risks before approving a new tenant within their strata complex, helping to avoid difficult insurance renewal situations and unforeseen costs.
Owners’ Committees, Strata Managers, and Property Managers each have a role to play in ensuring the process of approving new tenants aligns with the needs of the strata property as well as its insurance program. This article outlines why certain tenancies cost more to insure and key considerations to help limit surprises at renewal time.
SUPPLY & DEMAND
Insurers base their guidelines on the level of risk their company is willing to take on and in the current market, most are cautious. At times, few will provide cover and the cost can be extremely high for the end user (the lot owners). Noted below are some common tenancies in strata complexes that pose added challenges for insurers, which can impact the pricing and availability of insurance.
TATTOO PARLOURS – these tenancies attract a higher risk of malicious damage/fire/vandalism due to the links/perceived links with criminal associations such as criminal biker gangs.
MASSAGE PARLOURS - providing “additional” services (real or perceived) – these tenancies attract a higher risk of malicious damage/fire/vandalism to the property due to links (or perceived links) with criminal associations.
CHURCHES/CHURCH SERVICES – religious services can be targeted by other groups and consequently, they are viewed as being at greater risk of malicious damage/fire/vandalism.
DRY CLEANERS – the storage of chemicals and the application of heat in the dry cleaning process pose a greater fire risk.
STORAGE – the unknown risks associated with the storage of unidentified items in various quantities by a tenant is a difficult risk to manage and insure.
RECYCLING & SCRAP DEALERS – these tenancies involve the storage of large quantities of flammable goods/items, meaning there is a greater load of potentially flammable material. Higher fire loads can cause extensive damage and spread toneighboring lots or properties which can increase the overall claims cost. turn, this impacts the availability and pricing of insurance.
VACANT LOTS – tend to attract more malicious damage than occupied properties. Water damage can also go unnoticed, which can magnify the loss and lead to other damage.
Many of the tenants above pose a high risk of fire damage, which is reflected in the high volume of fire damage claims. In turn, this impacts the availability and pricing of insurance.
MANAGE RISKS & LIMIT COSTS
Below are some commercial strata risk management essentials:
The Strata Company/Owners' Corporation and/or Strata Management should keep an up-to-date record of tenant information, including the activities being conducted within the lot. This information will impact whether or not an insurer will provide cover and at what cost.
Consider whether a prospective tenant’s business/activities align with the wishes of the wider strata complex and the impact this can have on the insurance program.
As part of the Strata Company/Owners' Corporation and/or Strata Management’s ‘Duty of Disclosure’, incorrect or wrongful disclosure of tenant information could prejudice any potential claim on your policy. This could result in an insurer being entitled to reduce or refuse to pay a claim and, in some instances, cancel the policy altogether.
Always remember to notify your broker of any changes to tenancies within your complex.
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Honan Insurance Group Pty Ltd (Australian Financial Services Licence no. 246749, ABN67 005 372 396) is an insurance broker acting as agent for insureds and intending insureds. Honan is not an insurer. The information on this website has been prepared without taking into account your objectives, financial situation or needs. Any advice provided on this website is general advice only. Before making a decision to purchase an insurance policy, please read the relevant Product Disclosure Statement to make sure the policy is right for you. Insurance cover is subject to policy terms and conditions including policy limits and exclusions.
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