What is strata insurance? It is the policy an owners corporation holds over the building and common property of a strata scheme, together with the liability and management covers the scheme needs to run. Everyone in the building shares the same roof, walls and services, so the structure is insured once, collectively, and paid for through levies. This guide explains what strata insurance covers, where it stops, who arranges it and what cover each person in the building actually needs.
What Is Strata Insurance Designed to Do
A strata scheme divides a property into individual lots and common property. Each owner owns their lot. The owners corporation, known as a body corporate or strata company in some states, owns and manages the common property on behalf of all owners, and it is the owners corporation that holds the insurance.
The logic is practical. A fire that starts in one apartment does not stop at the lot boundary, and a burst riser pipe can damage several units at once. If every owner insured their own piece of the structure, the building would only be as well insured as its least careful owner. A single policy over the whole building removes that problem and gives one claim, one assessor and one rebuild.
What a Strata Policy Typically Covers
Wordings differ, and some sections are automatic while others are optional, but most strata insurance policies are assembled from the same building blocks.
Building
The structure, the common property and the fixtures that form part of the building, insured for the cost of rebuilding. The sum insured needs to allow for demolition, debris removal, professional fees and upgrades required to meet current building codes, unless the policy provides those as separate additional benefits.
Common Property Contents
Items the owners corporation owns that are not part of the structure: foyer furniture, common-area carpets, gym and pool equipment, signage, maintenance tools and stored spare parts.
Public Liability
Cover for the owners corporation’s legal liability for injury to people, or damage to their property, arising from the common property. A trip on a lifted paver or a fall on a wet foyer floor. State legislation sets a minimum amount the owners corporation must hold. Check the current figure for your state, then ask whether that minimum is actually enough for the size and use of your scheme.
Office Bearers’ Liability
Protection for committee members and office bearers against claims alleging a wrongful act in carrying out their duties: a decision that disadvantages an owner, a failure to act on a known problem, a procedural error at a meeting. Committee members are volunteers, and this cover is a large part of what makes the role reasonable to accept.
Fidelity Cover
Protection against loss of the scheme’s money through fraud or dishonesty by a person handling the funds, such as a strata manager, employee or committee member. The limit should bear a sensible relationship to the balances the scheme actually holds in its administrative and capital works (or sinking) funds.
Machinery Breakdown
Lifts, pumps, air-conditioning plant, boom gates and fire systems can fail through mechanical or electrical breakdown, which the building section generally excludes. In many policies this section is optional. For any building with lifts or significant plant it deserves serious consideration, and our article on machinery breakdown insurance explains how the cover responds.
Catastrophe Cover
After a widespread event such as a bushfire, cyclone or severe storm, building costs and trade availability can move sharply. Catastrophe cover, sometimes described as cost escalation or extra reinstatement cover, adds an amount above the building sum insured to absorb that surge. It supports an accurate sum insured. It does not replace one.
Other Sections Worth Checking
- Voluntary workers, for owners who help with working bees or minor maintenance.
- Government audit costs and legal expenses, for responding to certain regulatory or legal actions.
- Loss of rent and temporary accommodation, when insured damage makes lots uninhabitable.
- Lot owners’ fixtures and improvements, which some policies include up to a stated limit.
- Flood, which varies between policies and locations. Confirm whether it is included and read how flood is defined.
What Strata Insurance Does Not Cover
This is where the misunderstandings usually sit. The strata policy protects the building and the scheme. It is not designed to protect the people living or working in it.
- Lot owners’ contents. Furniture, electronics, clothing and personal effects are not covered. Depending on the state and the wording, some internal items such as floating floors, carpets, window furnishings or additions an owner has made may also sit outside the building definition.
- Investor owners’ risks. Loss of rent under a strata policy responds to insured damage to the building. It does not cover a tenant who stops paying or damages the lot. That is landlord insurance.
- Tenants. A tenant’s belongings and personal liability are the tenant’s to insure.
- Commercial occupiers. Shop fit-outs, stock, business interruption and the occupier’s own liability sit with the business, not the scheme. Our page on commercial strata insurance covers how this works in commercial and mixed-use schemes.
- Defects, wear and gradual damage. Defective waterproofing, corroded balustrades, a leak ignored for months. These are maintenance and building-defect matters, not insured events.
Who Arranges Strata Insurance
The legal responsibility sits with the owners corporation. In practice, the committee or the strata manager obtains quotes and places the cover, often through a broker, under authority the owners have delegated. The decision still belongs to the owners.
Good practice for a committee:
- Diary the renewal date and start the process well before it.
- Ask for any commission or fee attached to the placement to be disclosed in writing.
- Keep the certificate of currency accessible, because owners are asked for it when they sell, refinance or lease.
In a newly registered scheme, the first policy is usually arranged by the developer before the first annual general meeting. It deserves a proper review at that meeting rather than a quiet rollover.
What an Owners Corporation Must Hold
Insurance obligations come from state legislation and differ in detail. Broadly, an owners corporation must insure the building for its full replacement and reinstatement value and hold public liability cover at or above a set minimum. Some states also regulate how often the building must be valued and which other covers must be held or considered.
The main Acts include the Strata Schemes Management Act 2015 in New South Wales, the Body Corporate and Community Management Act 1997 in Queensland, the Owners Corporations Act 2006 in Victoria and the Strata Titles Act 1985 in Western Australia. The detail sits in these Acts and their regulations and changes over time, so check the current requirements for your state rather than relying on a figure from a previous renewal.
Getting the Building Sum Insured Right
The building sum insured is the single most important number on the policy. It should come from a professional insurance valuation that estimates the cost of demolishing and rebuilding the building to current standards. It should not come from the combined sale value of the lots, or from last year’s figure plus an allowance.
Even where a policy has no average clause, the sum insured is the ceiling on what can be paid. On a major loss, any shortfall falls on the owners, usually through a special levy. Our guide to underinsurance and co-insurance explains how the gap is applied where a policy does include one.
What Strata Insurance Do I Need?
The answer depends on where you sit in the building.
- Committee members should confirm the scheme holds building cover based on a current valuation, public liability at a limit that suits the scheme, office bearers’ liability, fidelity cover matched to fund balances, machinery breakdown where there is plant, catastrophe cover and a clear position on flood.
- Owner-occupiers need home contents cover, and should read the building definition in the strata policy to see exactly where their own cover has to begin.
- Investor owners need landlord cover for their contents in the lot, rent default and tenant damage.
- Tenants need their own contents and personal liability cover.
Residential schemes have their own features, including temporary accommodation for displaced owners and a heavier focus on water damage between lots. See residential strata insurance for more on how those schemes are covered.
How Excesses and Claims Work in a Strata Scheme
Strata policies carry a standard excess and often separate excesses for particular events, such as water damage or earthquake. Who pays the excess when damage starts inside a lot is decided by the scheme’s by-laws and state legislation, not by the policy itself. Our article on insurance excesses explains the mechanics.
Report damage to the strata manager promptly, take photos and limit further damage where it is safe to do so. Delay can turn a contained water claim into a larger, disputed one.
Common Questions
Is strata insurance compulsory?
Yes, in general. State legislation requires owners corporations to insure the building and hold public liability cover, with the detail varying by state and scheme type.
Does strata insurance cover the contents of my unit?
No. Your furniture and belongings need their own policy, and some internal fittings may also fall outside the building definition.
Does the strata policy cover a leaking shower?
It may cover sudden resulting damage, but failed waterproofing and slow leaks are usually treated as maintenance or gradual damage. The wording and the facts decide it.
How is the premium paid?
Through levies, usually apportioned by the scheme’s unit entitlements or contribution schedule. Some schemes use premium funding to spread the cost across the year.
Talk It Through
Request a strata quote or call 1300 983 940 and we will review the scheme’s current cover, valuation and excesses section by section before renewal.
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.