By Chris Palmer

Strata insurance premiums have been climbing at alarming rates over the past three years, putting significant pressure on owners corporations and individual apartment owners. What was once a relatively predictable line item in strata budgets has become one of the fastest-growing expenses, with some buildings seeing annual increases of 30-40%.

I’ve been tracking this issue closely because it’s affecting property values and investment decisions across the Sydney market. Understanding why this is happening matters if you’re considering buying into a strata scheme or already own an apartment.

Why Premiums Are Rising So Fast

Several factors are driving these increases, and they’re largely beyond the control of individual buildings.

Insurance companies have faced significant losses from catastrophic weather events over the past five years. Even buildings in metro Sydney that haven’t experienced direct damage are seeing premiums rise because insurers are reassessing risk across their entire portfolios. The 2022 floods in particular led to massive payouts that fundamentally changed how insurers price strata policies.

Building defects and construction quality issues have also played a major role. Insurers have paid out billions in defect-related claims, particularly for buildings constructed during the apartment construction boom of the 2010s. Combustible cladding claims alone have cost insurers hundreds of millions, and many insurers now apply significant loadings to buildings they consider high-risk.

Labor and materials costs for repairs have increased dramatically. When an insurer has to replace damaged building components, they’re paying current market rates which are substantially higher than even two years ago. This affects the replacement value calculations that determine premium amounts.

Reinsurance costs—the insurance that insurance companies buy to protect themselves—have also gone up globally. Australian insurers pass these costs directly to strata schemes through higher premiums.

What Buildings Are Doing About It

Some owners corporations are getting creative about managing these costs, though options are limited.

Increasing deductibles is the most common strategy. A building that previously had a $5,000 excess might move to $10,000 or even $25,000 to reduce annual premiums. This saves money each year but means the owners corporation needs larger reserve funds to cover the deductible if a claim occurs.

Shopping around for quotes has become essential. Where building managers might have simply renewed with the incumbent insurer, they’re now going to market every year and sometimes seeing significant price variations between insurers. The challenge is that the number of insurers willing to cover strata schemes has actually decreased, limiting competition.

Some buildings are implementing risk reduction measures that insurers recognize with lower premiums. Installing monitored fire systems, upgrading building security, improving maintenance programs, and addressing identified defects can all help demonstrate lower risk to insurers.

For organizations managing complex properties and dealing with mounting operational costs, AI consultants in Melbourne are helping optimize maintenance prediction and resource allocation to reduce overall building management expenses.

Buildings with significant defect issues sometimes find coverage difficult to obtain at any price. In extreme cases, buildings have had to self-insure certain risks or accept very limited coverage with high exclusions.

Impact on Apartment Values

Rising strata insurance costs directly affect property values, particularly in buildings with known issues.

When prospective buyers review strata records during due diligence, sharply increasing insurance premiums serve as red flags. They suggest either existing building problems or insurer concerns about future risks. Either way, it makes buyers nervous and often leads to lower offers or deal failures.

Strata levies that include these higher insurance costs make apartments less affordable to own. The carrying costs for investors go up, reducing returns. For owner-occupiers, higher levies eat into household budgets and affect borrowing capacity for upgrades or future moves.

Buildings that can’t obtain adequate insurance face even worse value impacts. Some lenders won’t provide mortgages for apartments in buildings without proper insurance coverage, effectively making units unsaleable.

What Buyers Should Look For

If you’re considering purchasing an apartment, strata insurance history deserves close attention.

Request at least three years of insurance renewal notices to see the trend. A building with stable or slowly increasing premiums suggests good management and no major risk factors. Sharp increases or difficulty obtaining coverage are warning signs.

Check whether the building has lodged significant insurance claims in recent years. Multiple claims often lead to higher future premiums or coverage restrictions.

Review the current policy schedule to understand what’s actually covered and what exclusions apply. Some buildings have such restricted coverage that owners face significant financial exposure if something goes wrong.

Ask about the building’s reserve fund and whether it’s adequate to cover the increased deductible amounts many policies now carry. An underfunded reserve coupled with a high deductible creates financial risk for all owners.

The Regulatory Response

State governments have been slow to address the strata insurance crisis, though some measures are emerging.

New South Wales introduced minimum standards for strata insurance that prevent owners corporations from severely underinsuring properties to save on premiums. While this protects owners from catastrophic underinsurance, it also prevents using lower coverage as a cost-saving measure.

There’s been discussion about government-backed insurance schemes for buildings that can’t obtain coverage in the private market, similar to arrangements for flood insurance in some jurisdictions. Nothing concrete has been implemented yet.

Building defect liability periods have been extended for some building types, shifting more responsibility back to developers and builders. This might reduce future insurance claims but doesn’t help buildings already experiencing defect issues.

Looking Ahead

There’s no indication that strata insurance premiums will stabilize soon. Insurance industry representatives suggest prices will continue rising until claims costs and risk assessments stabilize, which could take several more years.

For existing apartment owners, this means accepting higher ongoing costs and potentially needing to contribute to special levies for deductibles or improvements aimed at reducing premiums.

For prospective buyers, it means building strata insurance trends into investment calculations and potentially avoiding buildings with obvious risk factors like known defects, older construction, or locations in higher-risk areas.

The strata insurance situation has fundamentally changed the economics of apartment ownership in Australia. What was once a minor consideration has become a major factor affecting both the ongoing cost of ownership and property values. Anyone involved in the apartment market needs to pay attention to these trends and factor them into decisions.