When it comes to building insurance, the Owners Corporation Act (VIC) 2006 is pretty clear.
You simply have to insure your property.
But what amount of cover should your building have? And how often does that value need to change?
That’s where insurance valuations come in.
A property’s insurance value can change from year-to-year as a number of different factors will affect how much it will cost to replace and rebuild your building, meaning its important your Owners Corporation revisits the topic of valuation regularly.
“An insurance valuation is specifically for the reinstatement or replacement [of the building] purposes, so it has nothing to do with market value of the property,” Hays Property Group General Manager Alan Stubbings told Strata Plan.
“The valuations we provide are to specifically tell the Owners Corporation how much they need to rebuild or replace what they have on their property.
“We’re always looking at putting a new building where the existing one is and ensuring it is as similar as possible to what was there before.”
That stated aim can make obtaining an accurate and up-to-date valuation difficult, as there is plenty to consider.
While some valuations are conducted purely by looking at the building’s plans, Mr. Stubbings said important and relevant information would be missed without a physical inspection of the property.
Mr. Stubbings said there are a wide variety of factors that can cause an Owners Corporation to need to adjust its building insurance value, from changed traffic conditions to new neighbouring properties.
“Changes to traffic flows in an area could restrict how long it takes for a heavy vehicle takes to deliver a load of goods to a site when rebuilding,” he explained.
“So if the speed limit has gone from 60 km/h to 40 km/h, then in theory you’re increasing your travel time by 50 per cent and when you’re paying by the hour that adds more cost to the rebuild.”
Even shifting legislation and regulations can mean a sharp increase to the rebuild value of a property.
“The simplest example of that would be when they brought in a regulation that any building that is four storeys or higher has to have a lift,” Mr. Stubbings said.
“Any rebuild would mean you would need to include a lift in that building. These sort of things make it important that an Owners Corporation revisits their insurance valuation every three-to-five years.”
Mr. Stubbing also warned Owners Corporation members of significant risks should it fail to increase the value of their insurance policies after receiving such a valuation.
“There’s the potential that an insurance company in the event of a claim will turn around and say, ‘you knew there was a valuation that was than the figure you insured for,'” he said.
“So if a valuation came in at $5,000,000 and the Owners Corporation only insured for $4,000,000, the insurer might just say that you’re taking 20 per cent of the risk and therefore will only settle on 80 per cent of a claim.
“So if there’s a $1,000,000 claim, the insurer would only pay out $800,000, leaving the owners with a $200,000 gap. In a total rebuild scenario, they might just cut a cheque for $4,000,000 and tell you to go and rebuild it with that.”
Owners Corporations should ensure their property is valued for insurance purposes by a qualified professional who will visit your property and inspect it from top to bottom.
The Act recommends that all prescribed Owners Corporations (over 100 lots or with a budget in excess of $100,000 per year) obtain a valuation every five years and Strata Plan recommends a similar timeline for all body corporate titles under our management.
At your Owners Corporation’s Annual General Meeting, insurance valuations will be discussed and Strata Plan’s recommendations will be reiterated, however it is up to the owners to decide whether or not a valuation takes place.
When considering quotes for an insurance valuation, Owners Corporation committee members should look beyond the final price and look at whether or not the valuation will be performed by a qualified valuer.
Customers should also consider if the valuer will visit the property and physically inspect the building as a part of the valuation process.
While quotes which include these services are generally more expensive, it is a far more accurate method of determining your property’s insurance value.
If you have any questions about when your building had its last insurance valuation or more information on obtaining one, simply fill out the enquiries form below or via our Contact Us page and a member of Strata Plan staff will be in touch with you.
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