Strata Insurance Explained: What Your Scheme Must Cover, and What It Doesn't

Insurance is the single largest cheque most small schemes write each year, and the one obligation where getting it wrong is genuinely dangerous. Under-insure the building and a fire leaves owners personally exposed for the shortfall. Let the policy lapse and the scheme is uninsured and the committee is on the hook. Assume the building policy covers the carpet in unit 3 and you'll find out it doesn't at the worst possible moment. Strata insurance isn't complicated once you understand what it's actually for — it insures the building and the scheme's shared liability, not the things inside anyone's lot. This guide sets out what your owners corporation is legally required to insure, how to set a sum insured that will actually pay out, and where the line falls between the scheme's policy and an owner's own cover.

Why strata insurance is different, and not optional

In a freestanding house, one owner insures one building. In a strata scheme, no single owner owns the building — the owners collectively own the common property and the structure, and each owns the airspace of their lot. So the law makes the owners corporation (the body corporate, or strata company, depending on your state) take out a single building policy over the whole structure, and every owner pays for it through their levies.

This is not optional and it is not something the committee can quietly skip to save money. Every Australian jurisdiction makes building insurance a statutory duty of the owners corporation, and in most states failing to hold it is an offence. The obligation sits with the scheme as a whole, not with individual owners — which is exactly why a self-managed committee has to actively own it, because there's no strata manager arranging the renewal in the background.

Why it matters

• It's the law. The owners corporation is legally required to insure the building; letting it lapse exposes the committee and the scheme.
• The exposure is enormous. The sum insured is the full cost of rebuilding — usually the largest number attached to the scheme by an order of magnitude.
• Under-insurance is silent. A policy that's live but set too low looks fine right up until a major claim, when it pays out cents in the dollar and owners cover the rest.

What the owners corporation must insure

A proper strata policy is really a bundle of covers. The two that matter most — and that the law compels — are building and public liability. The rest come standard on most strata policies and are worth understanding.

The building — to full reinstatement value

The core cover. The policy must insure the building and common property for reinstatement or replacement value — the full cost of rebuilding it as new after a total loss, not its market or resale value. Crucially, that figure has to include more than bricks and mortar:

• Removal and disposal of debris after the loss.
• Professional fees — architects, engineers, surveyors needed to rebuild.
• Compliance upgrades — the cost of rebuilding to current codes, which are usually stricter than when the building went up.
• Escalation — the reality that a rebuild spanning a year or more happens at tomorrow's construction prices, not today's.

Get any of these wrong and the sum insured is short before the first brick is laid. This is why the building figure comes from a professional insurance valuation, not a guess or the last sale price.

Public liability

The second compulsory cover. If someone is injured on common property — a visitor trips on a cracked path, a tile falls from the façade — the owners corporation can be sued, and public liability responds. Every state prescribes a minimum amount of cover the scheme must carry; the figure is a floor, not a target, and for anything but the smallest scheme it's worth carrying more.

The covers that come standard

Most strata policies also bundle, and some states mandate, several further covers the committee should know it has:

• Office bearers' / committee liability — protects committee members personally against claims arising from decisions made in the role. For volunteers, this is the cover that lets people serve without betting their house on it.
• Voluntary workers — covers an owner who's injured doing unpaid work for the scheme (mowing the common lawn, clearing a gutter).
• Workers compensation — required if the scheme actually employs anyone (rare in a small self-managed scheme, but check).
• Fidelity / crime — covers theft or misappropriation of the scheme's funds.
• Machinery and common contents — lifts, pumps, and common-area fixtures like carpet in shared hallways or a common-room fridge.

Where the building policy stops: what owners insure themselves

This is the misunderstanding that causes the most grief, so be clear about it with every owner. The owners corporation's building policy covers the structure and common property. It does not cover:

• An owner's contents — furniture, electronics, clothing, and personal belongings inside the lot.
• Improvements and fit-out an owner has made — in many schemes, upgrades a lot owner installs themselves (a renovated kitchen, better flooring) can fall outside the base building policy unless specifically noted.
• Landlord's risks — loss of rent, tenant damage, and landlord liability. An investor letting their lot needs a separate landlord policy.
• The excess on a claim, where the by-laws or the loss make an individual owner responsible for it.

The practical rule to give owners: the scheme insures the building; you insure what's inside your lot. An owner-occupier needs a contents policy; an investor needs a landlord policy. Neither is covered by their levies, and neither is the committee's job to arrange — but it's the committee's job to make sure owners understand the gap, because when a burst pipe ruins someone's belongings, the first call is always to the treasurer.

Getting the sum insured right

The most common and most damaging insurance mistake in strata isn't lapsing the policy — it's insuring the building for too little. Set the sum insured below the true rebuild cost and most policies apply an average (co-insurance) clause: the insurer reduces every payout in proportion to the under-insurance, not just total losses. Insure a $2 million building for $1 million and a $200,000 claim can be cut roughly in half. The scheme is technically insured and still catastrophically exposed.

Two things keep the sum insured honest:

1. A professional insurance valuation, done by a valuer or quantity surveyor who specialises in reinstatement cost — not a market appraisal, and not the council rateable value. Most states expect this at a set interval (commonly every five years); do it more often if construction costs are moving fast or the building has changed.
2. Indexing between valuations. Insurers usually apply an annual escalation factor, but the committee should sanity-check it each renewal against what building actually costs now, rather than trusting the number to drift upward on its own.

The valuation and the reinstatement obligation are joined at the hip, which is why insurance and the capital works forecast both lean on knowing what your building is genuinely worth to rebuild.

Excess, claims, and who pays

When something goes wrong, the treasurer or secretary usually lodges the claim on behalf of the owners corporation, because the policy belongs to the scheme, not to any owner. Two points cause friction:

• The excess. Every claim carries one. The default is that the owners corporation pays it from the admin fund, but where the damage originates in a single lot or from one owner's negligence, the by-laws or a committee resolution may pass the excess to that owner. Decide the principle before you're in the middle of a claim.
• The building-versus-contents line. A single event — a burst pipe, a storm — often damages both the structure (scheme's policy) and an owner's belongings (their contents policy). Two separate claims, two separate insurers. Owners find this frustrating; explaining it early saves the argument later.

Keep a simple claims record: date, cause, what was claimed, the outcome, and which fund wore the excess. It's part of the scheme's financial records and it makes the next renewal conversation with the insurer far easier.

Buying and renewing the policy

Strata insurance is a specialist product, and a general-insurance broker or a standard home policy won't fit. Practical guidance for a self-managed committee:

• Use a strata-specialist insurer or broker. They understand the statutory covers and price the bundle correctly. If you use a broker, ask how they're paid — commission is normal, but you're entitled to understand it.
• Disclose accurately. Answer the insurer's questions honestly — building age, construction, any known defects, claims history, whether lots are tenanted or short-let. A non-disclosure is the fastest way to have a future claim denied.
• Shop it periodically. You don't have to re-tender every year, but testing the market every couple of renewals keeps the premium honest. Compare covers, not just headline price — a cheaper policy with a lower sum insured or thinner liability isn't cheaper where it counts.
• Renew on time, and tell owners. A lapsed policy is an uninsured scheme. Diarise the renewal, pay it from the admin fund, and report the sum insured and valuation date to owners at the AGM so it's on the record.

Common mistakes

1. Insuring for market value instead of reinstatement value

What the building would sell for and what it costs to rebuild are different numbers, and the second is usually higher. Insure to reinstatement value, from a proper valuation — not the sale price, and never the council rateable value.

2. Letting the sum insured drift below the rebuild cost

Construction costs move; a figure set five years ago and never revisited is almost certainly short today. Between valuations, sanity-check the indexed sum insured each renewal so the average clause never bites.

3. Assuming the building policy covers owners' belongings

It doesn't. Tell every owner-occupier to hold contents cover and every investor to hold a landlord policy — and put it in writing so no one can say they weren't told.

4. Missing the standard covers

Office bearers' liability, voluntary workers, and fidelity cover protect the people who run the scheme and the money they handle. Check they're actually on the policy rather than assuming.

Frequently asked questions

Do we legally have to insure the building?

Yes. In every Australian state the owners corporation must insure the building to reinstatement value and hold public liability cover. It is a statutory duty, and letting it lapse exposes the scheme and the committee.

Does the scheme's policy cover my furniture and belongings?

No. The building policy covers the structure and common property. Your contents are yours to insure — an owner-occupier needs contents cover, and an investor needs a landlord policy.

How often do we need a valuation?

Most states expect a professional insurance valuation at least every five years, and sooner if construction costs are moving fast or the building has changed. The valuation is what keeps the sum insured — and therefore any payout — accurate.

Who pays the excess when we claim?

By default the owners corporation pays it from the admin fund. Where the damage stems from a single lot or an owner's negligence, the by-laws or a committee resolution may pass the excess to that owner — settle the principle before a claim arises.

Can a small or two-lot scheme insure differently?

Sometimes. Some states allow single-tier or two-lot schemes to opt out of collective building insurance by unanimous resolution or exempt them from certain duties. Check the callout for your state — but never simply stop insuring without confirming you're genuinely entitled to.

Quick checklist

• [ ] The building is insured to full reinstatement value, including debris removal, professional fees, and code-compliance upgrades
• [ ] The sum insured comes from a professional insurance valuation, not market value or the last sale price
• [ ] A valuation is scheduled at least every five years, and the figure is indexed in between
• [ ] Public liability cover meets or exceeds your state's prescribed minimum
• [ ] Office bearers', voluntary workers', and fidelity covers are on the policy
• [ ] Owners have been told, in writing, to hold their own contents or landlord cover
• [ ] The renewal date is diarised and the policy is never allowed to lapse
• [ ] The sum insured and valuation date are reported to owners at the AGM

Related resources

• Admin Fund vs Capital Works Fund: What Can You Legally Spend From Each?
• Do You Need a Capital Works Forecast, and How Do You Build One?
• What "Self-Managed Strata" Actually Means (and When It's the Right Call)

This guide is general information for self-managed strata schemes in Australia. It is not legal advice. Insurance obligations, minimum liability amounts, and valuation intervals differ between states and change over time — always check the strata legislation and regulations that apply to your scheme, read your policy's terms, and seek professional advice where required.