Earlier this week, Lync Insurance Brokers attended a webinar hosted by CHU Insurance, focusing on one of the most significant and growing risks facing strata schemes across Australia — underinsurance.
The uncomfortable truth is this: many strata buildings are not insured for their true rebuild cost, often without strata management or owners realising it. When a major claim occurs, this can leave strata companies and lot owners exposed to serious financial shortfalls due to inadequate building insurance.
According to CHU, 83% of all buildings in Australia are currently underinsured, highlighting just how widespread underinsurance has become.
What Is Underinsurance?
Underinsurance occurs when a building’s insured value is less than the actual cost to fully rebuild following a major loss. If you are underinsured, you face:
- Reduced claim payments
- Significant out-of-pocket funds contributed by owners.
- Delays in repairs or reconstruction
- Financial stress for strata communities
Simply put, if your building insurance isn’t set at the correct amount, you may not receive enough money to rebuild.
Modern Buildings Are More Complex to Rebuild
Rebuilding today is far more complex than it was even a decade ago.
Modern construction standards require compliance with updated building codes, accessibility requirements, energy efficiency standards, fire regulations, and engineering specifications.
Add to this the cost of demolition, debris removal, professional fees, approvals, and site preparation — all of which must be included in your sum insured. Importantly, demolition costs alone can be significant, yet often overlooked when estimating replacement values.
A full rebuild is rarely just “putting the building back the way it was.” It’s a far more involved, regulated, and expensive process.
The Australian Bureau of Statistics (ABS) states that since 2020, building costs in Australia have increased by 31%, varying between 41% for house construction, 25% for other residential construction, and 27% for non-residential construction.
Complacency and Compromise Create Risk
One of the key themes highlighted by CHU was the risk created by complacency.
Over time, strata schemes can fall into the habit of simply increasing last year’s sum insured by a small percentage or compromising on valuations to help manage premium increases. While understandable, this approach shifts risk rather than removing it.
As we often say: “Don’t move the pain from premium time to claim time.”
Avoiding premium increases today can lead to far greater financial consequences tomorrow.
Extreme Weather Is Changing the Landscape
Extreme weather events are becoming more frequent and more severe. Floods, storms, bushfires, and heat-related damage are placing increasing pressure on insurance markets and rebuilding costs.
This makes accurate valuations and regular reviews more important than ever.
Duty of Care of the Council of Owners
Councils of Owners have a duty of care to ensure their strata company is adequately insured.
This includes taking reasonable steps to:
- Obtain regular replacement valuations
- Review sums insured annually
- Understand what is included (and excluded) in their policy
- Budget appropriately for premiums
- Make informed decisions rather than defaulting to the cheapest option
Failing to do so can expose owners to significant financial risk following a major loss.
What Can Strata Companies Do?
The webinar reinforced several practical steps:
- Arrange professional building replacement valuations every 2–3 years
- Review sums insured annually
- Ensure demolition costs are included
- Accurately disclose building features and occupancies
- Seek specialist strata insurance advice
- Avoid compromising cover purely to manage premiums
How Lync Helps
At Lync Insurance Brokers, we work closely with strata managers and councils to help ensure buildings are insured appropriately and reflect current rebuild costs.
We assist with:
- Coordinating valuations
- Reviewing sums insured annually
- Providing advice on rebuild exposures
- Claims advocacy
- Risk discussions around tenant types and building use
Our goal is simple: helping strata companies avoid surprises at claim time through proactive advice and transparent insurance arrangements.
We thank CHU Insurance for sharing their insights and for continuing to highlight the importance of adequate insurance protection across the strata sector.
If you’d like to discuss your building’s current sum insured or arrange a valuation review, please contact the Lync team.
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