27 Mar Why a 12-month insurance policy is beneficial for Owners Corporations
Why a 12-month insurance policy is beneficial for Owners Corporations
With increased costs of living at the forefront of everyone’s mind, we have recently had some requests from Owners Corporations for insurance policy periods of less than twelve months as a way to manage their expenses.
When it comes to requests for policy durations of less than twelve months, it is entirely at an insurer’s discretion. In Australia, insurance policies are “standard form contracts”. As such, the terms and conditions of the policy, which include its duration, are set by the insurer without much room for negotiation by the policyholder.
Because the costs of underwriting and administering an insurance policy can be significant, it is generally not economically feasible for insurers to offer policy periods of less than twelve months. Only in cases where a property has outstanding defects or maintenance works or other extenuating circumstances, an insurer may offer a three- or six-month contract to allow time for the completion of these works or remediation of these circumstances.
Whilst we can approach insurers to consider alternate policy durations, we do not recommend this action for a variety of reasons.
Firstly, a twelve-month policy provides long-term protection for the building and its occupants. Given the current insurance market where insurers are becoming more stringent in their underwriting criteria, a short-term policy period gives the insurer the opportunity to re-assess the risk and potentially decline cover if there are areas of concern or if the risk no longer meets their underwriting guidelines. Additionally, requesting a reduced policy duration on the basis of lack of cash flow may signal to the insurer that there is potential mismanagement of Strata Plan funds, which is a risk to the insurer from an Office Bearers Liability cover perspective.
Secondly, a twelve-month policy provides financial surety for the insured as the premium is locked in for a year and will not be subject to the premium increases that short-term policies will be exposed to. Furthermore, for policies with a duration of less than twelve months, the insurer will “load” the premium, essentially charging the client more than what a pro-rata annual premium would be.
Lastly, as the completion of application forms and negotiation of the insurance contract only has to occur once every twelve months, an annual policy reduces the administrative burden of managing a policy for the insured.
Where an Owners Corporation has concerns about paying a twelve-month premium in one lump sum, CRM Brokers can arrange Premium Funding, which allows the premium to be paid in monthly instalments. To learn more about Premium Funding or get a quote, you can contact us at 1300 880 494 (Press 2 to speak to our Strata Broking Team) or email [email protected].
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the Product Disclosure Statement (‘PDS’), Target Market Determination (‘TMD’) and Financial Services Guide (‘FSG’), which can be obtained by contacting CRM Brokers or downloading it from the insurer’s website before deciding to acquire, or to continue to hold, this product. Insurance policies issued by various insurers often differ.
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