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Risk Management - How It Affects Your Insurance
Courtesy of CHU
Insurers have been combating bodies corporate apathy towards risk management for many years. The process of identifying and highlighting risk hazards, implementing risk management programs, and following up to ensure the rectification work is being carried out within a community title building, can feel like a never-ending battle.
Most insurers will instruct either their surveyor (prior to inception of a policy) or loss assessor (at the time of a claim) to investigate the building and document any hazards they encounter within the common property. The report, which includes their recommendations in rectifying the underlying issues within the complex, is passed to the insurer.
Implement a preventative maintenance program
The hazards could vary from lifted pavers to parts of the building falling off or to deterioration over time. It is important that once the hazards are identified, they be rectified as soon as possible. A ‘preventative maintenance program’ should be implemented to ensure that all hazards are rectified and continuously ally and rigorously maintained.
Bodies corporate are also required by law to maintain their building (workplace) in accordance with the Work Health & Safety Act and Regulations 1995 (section 27). Bodies corporate must satisfy their duty of care at common law and maintain their common property in a safe condition, free from the risk of harm.
Fulfil your duty of care responsibilities with ongoing building maintenance
A Work Health & Safety Audit is the most appropriate method to adopt to ensure the body corporate complies. It will assist the body corporate to identify potential hazards early as well as provide the body corporate with ‘peace of mind’. The audit can also assist the body corporate to have sufficient funds in the sinking fund for future maintenance requirements, and highlight urgent rectification works above the low priority works. In all, using the audit demonstrates the body corporate’s duty of care responsibilities.
Always get a thorough valuation
Underinsurance is another factor in risk management and includes: increases in building construction cost since the last valuation was done; demolition of property after a loss and; increases in rebuilding costs between the date of the loss and the expected date of rebuilding. Those identified inadequacies in existing asset values include:
- Out-dated valuations (up to three years);
- Nil allowance for the full insurance year escalation or subsequent time to replace (assuming loss on last day of policy, escalation could be up to three years from inception date of policy);
- Values-based on written reported accounting values, and;
- The use of unrealistic building replacement rates per square metre.
You must ensure the values assigned to your buildings assets represent their full insurance replacement cost. A qualified insurance valuer will generally need to provide the valuation.
If you don’t implement the above steps, the repercussions could result in your insurer imposing a large excess and or loading the premium and or declining to renew the cover altogether. The insurer could also attach an "endorsement" to exclude damage caused "directly or indirectly" by the hazard/s that needs rectifying.
In extreme cases the body corporate may become un-insurable in Australia.
