A strata insurance valuation sets the building sum insured, and that figure decides how much of a major loss the policy can pay. Set it too low and the shortfall comes back to owners as a special levy at the worst possible time. Our strata insurance page explains the wider cover. This guide explains what a reinstatement valuation measures, what it should include, and why schemes revalue regularly rather than rolling last year’s number forward.
Reinstatement, Not Market Value
It is natural to think of a building in terms of what the units sell for. That figure includes land and reflects the property market. The building sum insured is something else: the cost to rebuild the buildings and common property to a condition equivalent to new, at today’s construction costs, with the land left out.
Building policies for strata schemes are typically written on a reinstatement and replacement basis. That means the policy pays to rebuild or replace without deducting for age, up to the sum insured. The words that matter are “up to the sum insured”.
What a Strata Insurance Valuation Should Include
- The buildings. Every structure in the scheme, including residential or commercial buildings, garages, car park structures and outbuildings.
- Common property improvements. Pools, lifts, fences, retaining walls, driveways, security gates and intercom systems.
- Fixtures within lots that form part of the building under your state’s rules and your plan.
- Demolition and removal of debris. Before a damaged building can be rebuilt, it has to be made safe, demolished and cleared. On a multi-storey building that is a substantial cost of its own.
- Professional fees. Architects, engineers, surveyors, certifiers and project managers are needed to design, approve and supervise a rebuild.
- Compliance with current requirements. A rebuild must meet the building codes and authority requirements in force at the time, which may be more demanding than those the building was approved under.
- Escalation. Construction costs keep moving while a rebuild is designed, approved, tendered and built. For a large scheme that period can run for years, and the valuation should allow for cost increases across it.
Ask the valuer to show these items separately, and to explain how GST has been treated for your scheme. That way the committee can see what the figure is made of rather than accepting a single number.
Who Should Prepare It
Use a qualified valuer or quantity surveyor with experience in strata reinstatement valuations, and give them the plans, previous valuations and details of any major works. Complex buildings, heritage elements, mixed-use schemes and buildings with specialised services all benefit from someone who has valued similar schemes before. Tell the valuer about access constraints too. A building on a narrow street, a steep block or a site with no room for cranes costs more to rebuild than the same building on an open lot, and a desktop valuation may not pick that up. For mixed-use and commercial buildings, see our page on commercial strata insurance.
How Often to Revalue
Some states set rules on how often schemes must obtain a valuation, and those rules change from time to time. Check the current requirements where your scheme is located, and treat them as a minimum rather than a target.
Between full valuations, schemes commonly apply indexation to keep the sum insured moving with construction costs. Indexation is an estimate. It does not capture changes to the building, new code requirements or local cost movements that differ from the index. Consider a fresh valuation earlier if:
- Major works have been completed, such as new lifts, facade replacement or cladding remediation.
- Common property has been added, such as solar arrays, EV chargers or new car parking.
- Construction costs have moved sharply since the last valuation.
- Defects have been found that would change how the building must be rebuilt.
- The committee has any doubt about the basis of the current figure.
What Underinsurance Costs Owners
If the sum insured is lower than the true cost to rebuild, a total loss claim is capped at the sum insured and the gap has to be funded by owners. Some policies go further and contain an average or co-insurance clause, which can reduce a partial claim in proportion to the underinsurance, not just a total loss. Our explainer on underinsurance and co-insurance shows how that reduction is applied.
Partial losses deserve attention for another reason. A serious fire in one part of a building still brings demolition, professional fees, code upgrades and escalation, and those allowances are exactly what a rolled-forward figure tends to leave out.
A lower sum insured does reduce the premium, which is why trimming it can be tempting. It is the wrong lever. If the premium is the concern, look at the excess, the claims record and the building’s risk features instead. Our guide to how strata premiums are worked out covers them.
What Sits Outside the Building Sum Insured
A valuation measures the building. Other parts of a strata policy carry their own limits: public liability, office bearers’ cover, loss of rent or temporary accommodation, and common area contents such as gym equipment, lobby furniture and maintenance tools. Check each of those separately at renewal. Common area contents in particular tend to be set once and then forgotten while the scheme buys new equipment.
Recording the Decision
The sum insured is ultimately a decision for the owners corporation or body corporate. Record in the minutes which valuation was adopted, its date, any indexation applied and the reasons for any departure from the valuer’s figure. If the scheme ever has a large claim, that record shows the committee acted on professional advice.
Lot owners should also know where the building sum insured stops. Improvements made by individual owners may sit outside it unless they have been disclosed. Our guide to strata water damage shows how lot and common property boundaries play out when a claim is made.
Common Questions
Why is the rebuild figure different from what the units would sell for?
Sale prices include land and reflect the property market. The sum insured measures the cost to demolish, clear, design and rebuild, which follows construction costs.
Can we just index last year’s figure?
Indexation helps between valuations but does not replace them. It will not pick up building changes, new code requirements or local cost movements.
Does a higher sum insured mean a higher premium?
Generally, yes, because the insurer is taking on a larger potential loss. It also means the policy can pay for what a rebuild actually costs.
Talk It Through
Request a strata quote or call 1300 983 940 and we will review your scheme’s sum insured, valuation date and underinsurance terms with the committee. Our strata insurance page explains how we place building cover for schemes.
General advice only. This article does not take your objectives, financial situation or needs into account. Consider the relevant PDS and Target Market Determination before deciding on a policy.