Product Fundamentals: Understanding the distinct roles of insurers and intermediaries in the strata insurance marketplace
Strata insurance is a unique product that exists in the very wide insurance market. The focus on shared property assets is inherently more complex than standard property insurance where the building is owned by a single individual or entity. The consideration of legal requirements that incorporate state-based legislation, and the balancing of multiple stakeholder priorities, require specialised expertise.
It is essential for those involved in procuring insurance for a strata plan (be they strata managers or owners corporations) to understand the distinct function and responsibilities of the key market participants involved.
This article sets out the key roles of insurers, underwriters and risk advisors (intermediaries appointed by or acting on behalf of owners’ corporations) as they pertain to strata insurance.
We also offer observations of underwriting trends in transacting strata policies.
Understanding the Insurer relationship
As a speciality class of insurance, the strata insurance market comprises a class of intermediaries known as underwriting agencies.
The underwriting agency acts on behalf of insurers under a delegated binding authority. The binding authority enables the agency to act as an agent of the insurer to ‘underwrite’, and issue policies on its behalf. It may also extend to offer claims authorities to the underwriting agency.
Underwriting agencies offer insurers the benefit of outsourcing operational, managerial and human resources functions. Staff at underwriting agencies possess specialist expertise, which would be costly for the insurers to maintain or develop in-house. Insurance companies can pass time-consuming and complicated tasks to the underwriting agency that already has developed the capability.
- CHU Underwriting Agencies Pty Ltd (a wholly owned subsidiary of Steadfast Group Ltd); QBE Insurance (Australia)
- Strata Community Insurance Agencies Pty Ltd; Allianz Australia Insurance
- Strata Unit Underwriting Agency (owned by AUB Group Limited); CGU Insurance
- Longitude Insurance Pty Ltd (owned by AUB Group Limited); Chubb Insurance Australia
The rise of digital transacting and limitations when assessing complex strata plans
There has been significant investment in digital technology by underwriting agencies. These platforms offer online quotations, issue policy documents, lodge claims and provide data to report on underwriting profitability. Investment in technology has improved efficiency in insurance transacting and administration.
There are however limitations with online transacting. Ordinarily the more complex risk profile of the strata plan sought to be insured, the less likely digital platforms may be utilised. More complex risk profile plans include those that have had claims, have construction defects, are of unusual construction, are located in risk prone areas or have significant sums insured.
Underwriting platforms operate on very strict parameters. Where there are complexities, more traditional “human” underwriting is more likely and require disclosures such as surveys, valuations, risk management plans and assessment of loss data. These would need to be presented by risk advisors to underwriters and cover negotiated appropriately.
The role of the risk advisor
Complex strata plans require specialist advice, to ensure that they have adequate coverage, arranged appropriately and priced most competitively. To achieve these objectives the risk advisor’s role is critical. It must present concise risk information to attract underwriters to offer quotations. In doing that the risk advisor’s role is ongoing. It is constantly advising its clients on risk trending and innovative approaches to mitigate against them.
Where an advisor cannot present demonstrated risk mitigation and maturity for a complex strata plan, it is likely insurers will not offer quotations. It is imperative owners’ corporations stay engaged to formulate a proactive strategy that navigates risk trending.
Despite the transacting and cost efficiencies technology offers, the limitations of online systems are exacerbated particularly for complex plans in a hardening insurance market. It is becoming more common that underwriting agencies who have invested in online systems, have limited capability to negotiate via the traditional intermediated, negotiated underwriting process.
It follows that there are opportunities for new insurers to enter the strata insurance market. We have recently experienced new capacity being deployed by Lloyds of London and new underwriting agencies. Notwithstanding, the new insurer entrants have limited capacity and as such can only offer quotes on plans with low declared values. The newer entrants have also had less exposure to the very nuanced concepts that are couched in strata insurance, this may impact stability in coverage and rating that they may continue to offer.
Our Team is available to discuss enquiries and demonstrate our unique value proposition to the strata industry. Please contact us via the form below to discuss your needs.