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Residents’ Management or Body Corporate Insurance: UK vs Australia

If you’ve owned apartments in Australia and UK, it probably won’t take you long to realise that there are some surprising differences between how the two nations handle management company responsibilities. And one of the most important of these is insurance.

Back to basics

Both Australia and Britain have seen a surge in apartment buildings in recent years, but their ownership and management systems are quite distinct from each other. In Australia, a ‘body corporate’ will own the land, common areas and building fabric, whereas individual unit owners hold something called an strata title over their apartment, rather than a lease arrangement with the building owners. The title is open-ended with no termination date, and strata title owners automatically become members of the body corporate, which in turn is run by an elected management committee.

In England and Wales, most apartment owners have a lease agreement with the overall freehold owner of the building. However, only those leaseholders who are also lucky enough to have a ‘share of freehold’ are likely to be members or part-owners of the building’s management company. From these members, the directors are selected or appointed.

Despite these differences, one thing that both countries have in place is compulsory insurance for buildings. Unfortunately, at least in regards to insurance, that’s about as far as the similarities go.

Insurance for multi-resident properties

In the UK, the property insurance scene can be a bit of a minefield. Many property insurers are happy to cover buildings and common areas, and even public liability and property damage, but that’s their limit. If the directors of a residents’ management company want legal defence cover or officers’ liability cover, then they’ll need to search elsewhere, and while standard policies for both can be relatively easy to find, not all policies can be tailored to cover property management issues. And as any director of a residents’ management company will tell you, there are a lot of issues decided upon each year, many of which could end up being contentious or even in court.

The scenario in Australia is very different. There, specialist strata insurers such as Flex Insurance, readily bring everything under one policy through a combination of standard inclusions and optional extras. A management committee could, on top of its basic building and public liability insurance (which are compulsory in all states), choose to add on office-bearers’ liability cover, as well as fidelity guarantee against fraud, legal defence insurance, even workers and volunteer injury cover – all wrapped up in the one policy.

Is directors’ liability cover really that important?

In a word, yes. Without directors’ cover, the office bearers of the management company can be held personally liable if an aggrieved party thinks that a director or committee have not exercised due care when making a decision, and that decision has led to loss or injury. Directors’ and officers’ insurance (often shortened to D&O Insurance) can protect individuals against claims for negligence, mismanagement, breach of duty, trust or care, and even errors and omissions.

It is possible for a residents’ management company to be wound-up, to limit personal liability if it was sued, but this in itself brings its own hassles and risks. That’s why, having D&O cover makes sense.

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Flood victims are still waiting for insurers to pay their claims

Is insurance just for peace of mind?

Most people realise how important it is to insure their home and possessions as a safeguard against their worst nightmares becoming a reality. Be it burglary, storm damage, fire or flooding, virtually everyone has insurance which enables them to sleep at night, not worrying about being left out of pocket or with nothing after a major disaster.

Or so you would think. But as keen as the industry is to collect premiums from you, things are quite different when an insurer has to pay a claim. Even a simple small claim such as a handbag loss can result in a disputed claim requiring proof of original costs (receipts) and police crime number etc. Even when the claim is eventually paid (ours took over a month) the following years premium increased by over 30%.

Flood 1So it is hardly a surprise that this grubby industry is dragging its heels in settling claims from those flooded in January. This, despite the Prime Minister David Cameron saying on national television that he was “putting insurers on notice that they needed to pay up the money fast” So how can it be that, according to the Association of British Insurers, 7,480 householders, that is 40% of those who made a claim for flood damage this year, are still waiting to be compensated by their insurer? The ABI figures also highlight that 2,600 will still be waiting at Christmas! Around a 100 families on the Somerset Levels are still in temporary accommodation, often living in caravans.

The ABI says it does not know the exact number of people living in temporary accommodation and insurers say not all outstanding claims are disputed and think that 85% of the flood claims submitted will be settled before the New Year. That would still leave 15% (nearly a sixth) who are still waiting!

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Local Authorities approve building of new homes on flood plains

Against expert advice and clear objections from the Environment Agency, local authorities across the country are giving developers planning permission to build new homes on flood plains. In England alone, around 197 developments have been approved on flood plains since 2002 against the advice of the Environment Agency.  Around 200,000 homes built on flood plains in the UK, with 38,000 new homes having been built are in areas regarded as high-risk – in other words likely to be flooded.

Flood PlainsEven if new homes being built on flood plains are raised above anticipated flood levels, the floodwater will just be channelled elsewhere, perhaps to areas that would have otherwise escaped flooding.

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