Strata insurance valuations and underinsurance in Australia
Strata insurance valuations: the quick version
Here are the main things to know about valuations and the building sum insured.
Insure the rebuild, not the sale price
The building sum insured should reflect the cost of reinstating the insured property. It is not the same as the property's market value.
A valuation includes more than construction
Demolition, debris removal, professional fees, code changes and cost escalation can all affect the replacement amount.
Valuation rules differ by state
Queensland has a five-year requirement where the body corporate must insure buildings. Victoria has a five-year rule for prescribed owners corporations. Other jurisdictions use different duties or guidance.
An old figure can affect more than a claim
An unreliable building sum insured can leave a funding gap after a major loss. It can also send a scheme to the wrong provider route during quotation.
A strata insurance valuation estimates how much it would cost to reinstate the insured building and shared property after a major loss.
That amount helps the owners corporation or body corporate set the building sum insured. It is not a sale-price estimate and it should not be copied from a council valuation.
The legal requirements are not identical across Australia. Check the current rule for the property's state or territory before relying on a standard review cycle.
What is the building sum insured?
The building sum insured is the amount shown for the building on the insurance schedule.
It sets a main limit for insured property damage, subject to the policy terms. Some policies add separate allowances or percentage-based extensions, while others require the scheme to select optional catastrophe cover.
The figure should be based on reinstatement cost. A property can have a high sale value because of its land or location but a lower rebuild cost. Another property can have a modest sale value but high demolition, access or compliance costs.
What should a replacement-cost valuation include?
A professional valuation may account for:
- current labour and material costs;
- demolition and debris removal;
- architects, engineers, surveyors and project management;
- approvals and statutory fees;
- work needed to meet current building rules;
- site access and neighbouring-property constraints;
- rebuilding shared services and common facilities;
- cost increases during design, approval and construction; and
- taxes or other amounts that form part of the reinstatement cost.
The scope needs to match the property the scheme is legally required to insure. The registered plan and state rules help define that property.
Market value and replacement value are different
| Market value | Replacement value |
|---|---|
| Estimates what the property may sell for | Estimates the cost to reinstate the insured building and property |
| Includes the effect of location and land value | Focuses on demolition, design, approvals and rebuilding |
| Moves with buyer demand and local sales | Moves with construction costs, standards and site conditions |
| Is not normally the basis for a strata building sum insured | Is the relevant starting point for strata building insurance |
A developer's original construction cost is also a poor substitute. It may not include demolition, escalation, professional fees or the cost of rebuilding on an occupied site years later.
How often does a strata building need a valuation?
There is no safe national answer. The source report verified the following current official positions.
| Jurisdiction | Current official position reviewed for this guide |
|---|---|
| New South Wales | NSW Government says regular valuations are essential and recommends a new valuation every two to five years. Limited exemptions can apply to some two-lot schemes. |
| Queensland | If the body corporate must insure one or more buildings for full replacement value, it must obtain an independent valuation at least every five years. |
| Victoria | A prescribed owners corporation must obtain a valuation of the buildings it must insure every five years and present the report at the next general meeting. Other owners corporations should still consider current replacement value. |
| Western Australia | A strata company must hold required common-property insurance to replacement value. The research source set did not establish a single periodic valuation rule for every WA scheme. |
The present research did not verify final consumer wording for the valuation frequency in the ACT, Northern Territory, South Australia or Tasmania. Check the current local authority or legislation for those jurisdictions.
A fixed calendar is only one trigger. A scheme may need an earlier review after:
- a major renovation or extension;
- extensive lot-owner improvements;
- a change in building use;
- a sharp rise in local construction costs;
- a major claim that reveals gaps in the earlier scope;
- a change to building standards; or
- a catastrophe that affects labour and material availability.
Does annual indexation replace a valuation?
No.
An insurer may increase the building sum insured at renewal using an index. This can help the amount move with general cost changes.
Indexation does not inspect the building. It may not capture renovations, unusual access, new code requirements, missing scope or a valuation that was wrong at the start.
Use indexation between proper reviews. Do not treat it as proof that the amount is sufficient.
What does underinsurance mean for a strata scheme?
Underinsurance means the insured amount is below the cost the scheme may need after a loss.
After a total loss, the scheme could face a shortfall between the policy payment and the actual reinstatement cost. Lot owners may then need to fund that gap, subject to the policy and the scheme's decisions.
Check whether the current policy contains an underinsurance, average or co-insurance provision that could affect a claim. The approved research does not establish one rule across all strata products.
There is no reliable national percentage in the approved research showing how many Australian strata buildings are underinsured. A high figure repeated on a commercial webpage should not be treated as a market fact without the original study and method.
Can a building be overinsured?
A higher sum insured does not guarantee a higher claim payment. The insurer pays according to the loss, policy limits and settlement terms.
An amount materially above a reasonable reinstatement estimate may increase premium without creating the expected benefit. The committee should use a supportable figure rather than adding an arbitrary buffer.
Some policies include catastrophe or escalation extensions. Compare those sections with the main sum insured before deciding that the base figure needs a separate allowance for the same cost.
How the building sum insured affects provider choice
Several providers publish value bands or thresholds.
- Hutch states a residential building sum insured limit of up to $20 million.
- Sure states a maximum building sum insured of $20 million for its regional Queensland strata product.
- Flex publishes one document route for new business up to $25 million and renewals up to $35 million, with a separate above-$25-million product route.
- Vero describes a target range from $1.5 million to $50 million, with higher limits potentially supported through co-insurance.
- Chubb lists a minimum building sum insured of $50 million within its preferred northern-Australia appetite.
These are provider examples. They are not a national market rule and they do not guarantee acceptance.
If the current building sum insured is unknown, Specialist Compare keeps that answer neutral. It does not assume the building is above a provider's limit.
Preparing for a valuation
Give the valuer enough information to understand the full scheme.
Property records
- Registered strata or community plan.
- Site plan and floor areas.
- Building plans, where available.
- Details of shared services and structures.
Changes since the last report
- Extensions and major refurbishments.
- New lifts, plant, solar or batteries.
- Lot-owner works that may form part of the insured building.
- Changes to commercial tenants or building use.
Risk and access information
- Heritage or planning controls.
- Difficult demolition or site access.
- Adjoining buildings and shared structures.
- Known defects and current remediation work.
Existing insurance information
- Current policy schedule.
- Earlier valuation.
- Current endorsements and catastrophe extensions.
- Any insurer requests about the building sum insured.
What should the committee do with the report?
1. Check that the property described matches the registered scheme. 2. Ask about any obvious missing buildings, services or fees. 3. Give the report to the broker or insurer before renewal. 4. Compare the recommended reinstatement amount with the policy schedule. 5. Record the committee or general-meeting decision. 6. Keep the report with the scheme's insurance records. 7. Set a review date and note any earlier trigger events.
The committee should not alter the figure simply to reach a lower premium without understanding the funding risk.
Frequently asked questions
Is a strata insurance valuation compulsory?
It depends on the jurisdiction and scheme. Queensland requires an independent valuation at least every five years where the body corporate must insure buildings for full replacement value. Victoria has a five-year rule for prescribed owners corporations. Other rules differ.
Who can prepare the valuation?
Use a suitably qualified professional with experience in insurance reinstatement valuations and strata property. Check any local legal requirements and the insurer's information needs.
Is the purchase price a suitable building sum insured?
No. The purchase price reflects land, location and market demand. The building sum insured should reflect reinstatement cost.
Is a council valuation suitable?
Usually not. Council and rating valuations serve a different purpose and may include land value. They do not normally provide the full demolition, professional-fee and rebuilding scope needed for insurance.
What happens if the building sum insured is too low?
The scheme may face a shortfall after a major loss. Check whether the current policy contains an underinsurance, average or co-insurance provision and how it applies.
Should GST be included in the valuation?
Tax treatment can depend on the scheme and the valuation basis. Ask the valuer, insurer and scheme accountant how it should be handled. Do not add or remove GST without advice.
Does catastrophe cover fix an inadequate valuation?
No. Catastrophe cover may add a separate allowance after a defined event, but it does not replace a sound base valuation.
Can we use the same valuation for several renewals?
Possibly, subject to the jurisdiction and the condition of the property. Review the figure at each renewal and obtain a new valuation within the required or appropriate period. Arrange an earlier review after a material change.