Commissioners Corner – Alternative Insurance
August 26, 2019
I know that obtaining the required type and amount of body corporate insurance is proving to be a challenge for some bodies corporate, particularly in North Queensland, where cyclones and other severe weather events are having a major impact on both cost and availability of cover.
For an overview of insurance obligations for a body corporate, please click here. Essentially, a body corporate must insure each building in which is located a lot included in the scheme, for full replacement value.
Where a body corporate cannot comply with this requirement, body corporate legislation provides that I may authorise a form of what is called “alternative” insurance. The relevant provision is section 179(4) of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Standard Module) and there are equivalent provisions in the other Regulation Modules for this.
So what, exactly, might “alternative” insurance look like?
This section of the Regulation Module provides that upon application, I may authorise the body corporate to put in place alternative insurance if I am satisfied that what is being proposed gives cover that is as close as practicable to the cover given by insurance. The section goes on to give an example of alternative insurance as “giving cover up to an agreed value”.
While an example in legislation is not necessarily binding, it does nonetheless give guidance on what the section of legislation is intending will occur.
To further answer the question of what alternative insurance is, I will use the example of a very recent alternative insurance approval. In fact, it’s the first application for alternative insurance that I’ve approved – and one of the very few I’ve received – since being appointed Commissioner.
The scheme in question is located in Far North Queensland. As we all know, this region is at risk to severe weather events such as cyclones. This, combined with other factors, made obtaining required insurance cover for this scheme extremely difficult and the best efforts of the body corporate, via its body corporate manager and insurance brokers, had resulted in a situation where a combination of insurers had been able to offer cover less than full replacement value. This combined cover amounted to approximately 70% of the valuation of the scheme building. In other words, the body corporate had sourced approximately 70% of full replacement value.
Importantly, the body corporate was able to provide evidence to support its application, including:
- A copy of the building valuation;
- A written statement, outlining the efforts they had made to source cover;
- Written advice from its insurance broker about the situation, including potential consequences of no cover and also of the proposed alternative insurance; and
- A copy of the vote outside of committee meeting which authorised the lodgement of the application.
It was on the basis of the above and having regard for the particular circumstances of the scheme that I was able to authorise the alternative insurance under s179(4) of the Standard Module.
Another way of looking at my decision is to distil it to two options: no cover at all, versus at least some cover to an amount that doesn’t leave the body corporate which minimises the risk to the body corporate as much as possible. When put in those terms it becomes easier to understand the decision-making process not just for this instance but for other bodies corporate in similar circumstances.
Importantly, “alternative” insurance should not be read as “no” insurance. The Standard and other Modules make clear that I am being asked to consider an alternative to and not an exemption from insurance altogether. There is no provision in the Regulation Modules or other legislation to completely waive a body corporate’s legislative requirements in relation to insurance.
Remember also that the provision about alternative insurance makes clear that I am only to approve it where a body corporate “cannot comply” with its insurance obligations. It is unlikely to be the case that an insurance premium which is very expensive and which has dramatically increased in a short period of time could be argued as being a situation where a body corporate could not comply with its insurance obligations – clearly, it can, if cover is being offered.
With all of this in mind, if you are part of or involved with a body corporate and you’re finding obtaining the required insurance cover to be challenging, verging on the impossible, firstly please consider the Practice Direction (no. 28) about alternative insurance, which you can find here. The Practice Direction sets out what would be required, including the fact that while alternative insurance isn’t an order of an adjudicator, it still needs to be made on our Form 15, Application for Adjudication, along with the prescribed fee for adjudication. My Office may look at reviewing this Practice Direction, in light of the decision I describe above, to ensure the Practice Direction remains current, so please stay tuned for more details on that if and when it happens.
From a very practical perspective, try to not leave any such application until the last minute, as my Office may not be able to guarantee, for example, a same-day turnaround.
Be sure that you can evidence all attempts at sourcing cover. This might be copies of emails between the body corporate, its body corporate manager and an insurance broker or even direct with insurance companies. Bear in mind that if I need to be satisfied I may request further information or ask the body corporate to demonstrate why it has not, for example, made further enquiries or undertaken further negotiations with an insurer or broker.
Remember, insurance cover for the scheme is a critical issue with implications for all owners (and occupiers), so any suggestion that cover is going to be altered will have an impact. While in the case I mention above it was a committee decision to lodge the application, consideration should be given to how the application (and then its outcome) would be communicated to everyone. The body corporate reviews its insurance policy at the annual general meeting, so it might be a good idea for the committee to consider an explanatory note about alternative insurance at that forum too. If an alternative insurance approval is given, remember that this would form part of the body corporate’s records, which is available to not only all current owners and occupiers but also prospective purchasers and occupiers.
Given the implications of insurance cover, it may also be advisable to consider seeking qualified legal advice prior to lodging an application for alternative cover.
Finally, some resources about insurance which may assist. My Office has collaborated with the Insurance Council of Australia on a fact sheet, providing some practical tips which may assist bodies corporate in reducing their insurance premiums. You can access the fact sheet here. Secondly, for bodies corporate in Northern Australia (which is defined as from Rockhampton north and west by 100km), there may be the possibility of being part of the Strata Title Inspection Program, being run by James Cook University in Townsville as part of a Federal Government program. One of the aims of this program is making bodies corporate more resilient to weather events. Further information is available here.
For general body corporate information, contact my Office on 1800 060 119 or www.qld.gov.au/bodycorporate.