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In May, the Government announced its intention to establish a reinsurance pool for cyclones and associated flood damage, effective July 1, 2022. Backed by a $10 billion Government guarantee, the pool would cover strata, residential, and small business property insurance policies in Northern Australia.
In response to the announcement, insurers and brokers are advocating that a reinsurance pool is unlikely to significantly reduce premiums overall and that the Government should instead be reviewing Stamp Duty and GST charged on insurance in conjunction with the development of a reinsurance pool.
We have seen a significant influx of broker-distributed Rent Default product options available to Honan. We expect insurers to re-enter the Landlords’ insurance market over the next 12 months and competition to drive lower premiums in 2022.
The ending of the Evictions Moratorium on March 28, 2021, has not caused major impacts to Landlords’ Rent Default coverage. Real estate agents are expected to remain vigilant in their approach towards tenants’ rental payments, but there is cautious optimism in the real estate market that the worst may have passed. Insurers are slowly returning to the market with rent default products in one form or another.
Many policies are seeing movement in standard excesses from $500 up to $1,000 (with an option to pay extra for an excess buydown). The cycle of excess increases in Strata has been a slow journey – from nil over a decade ago, to $300 followed by a slow increase towards $500, and now $1,000.
We continue to see higher water damage excesses being imposed on buildings with recent water damage claims or reported defects. The excess increases from $500 towards $1000 are intended to reduce the large proportion of small attritional claims lodged for minor repairs or plumbing callout works which often cost $500 – $1,000.
REAL ESTATE PROFESSIONAL INDEMNITY
The end of the financial year is often a time for the insurance market to re-evaluate its position and exposure to risk. Reinsurers and other securities have been more reticent when offering capacity in the Australian Professional Indemnity market for Real Estate Agents. This has been largely driven by the increased occurrence and severity of bodily injury claims relating to property management services and litigation becoming more prevalent in Australia.
COVID restrictions and lockdowns have taken a significant toll on the retail and commercial sectors, resulting in vacant lots, particularly across urban centres. It is important to remember that if a lot is vacant for 90 consecutive days, insurers must be notified. When a lot becomes vacant, property managers and owners should consider reducing their risk exposures (e.g. installing alarms and security cameras where appropriate).
On December 1 this year, the minimum public liability cover required to be held by an Owners Corporation within Victoria is increasing to $20m. While there are differing views amongst insurers as to how this will happen from a logistical point of view, Owners’ Corporations with less than $20m Public Liability Cover should be mindful of the upcoming changes.
As covered in last quarter’s HoneIn, extensive regulatory changes were enacted by the Victorian Government in March. If you are a landlord and have not already considered the new regulations, we encourage you to do so.
The Strata insurance market continues to harden at varied rates, depending on the sector. Residential Strata premiums are increasing at around 10% nationally and we expect this to continue. Commercial property premium increases are trending higher at 15% – 20% for commercial strata, 5% – 10% for non-strata commercial buildings, and upwards of 30% for industrial buildings with high-hazard activities.
For commercial tenancies, insurers continue to be wary of “high risk” occupations such as tattoo parlours, dry cleaners, recyclers, and restaurants with wok cooking or deep fat fryers over 20 litres.
Discover more market updates from this edition of HoneIn.
