As a result of amendments to the Terrorism Insurance Act 2003 (Cth), some residential Strata Insurance policies have experienced significant total premium changes from July 1, 2017. These changes have been applied Australia wide and relate to the introduction of a Terrorism Levy.
What changes are being made?
Property types eligible for insurance compensation as a result of incidents officially declared an act of terror by the Commonwealth Government have been expanded. The eligible definition now includes some mixed-use Commercial and Residential Strata buildings.
The Terrorism Insurance Act definition of the terrorism exclusion definition has also been changed. The cover exclusion has been widened to now exempt acts of terror described as “chemical”, “biological”, “polluting”, “contaminating”, “pathogenic”, “poisoning”, or words to similar effect.
With both changes into effect, it is important that our clients know why their premiums have changed and the broadened ‘property type’ definition is our greatest concern.
What are the implications of the broadened ‘property type’ definition?
From July 1, 2017, the Australian government imposed Terrorism Levies of up to 16% (plus statutory charges), will be applied to Strata Insurance policies that sit within the eligible properties.
These changes broaden the definition of eligible property to include buildings with at least 20% of their floor space being used for commercial purposes or schemes which have a single build Sum Insured of at least $50 million (whether used for commercial or other purposes).
How are Strata buildings affected?
Commercial Strata buildings will still continue to be charged a Terrorism Levy, the only change here surrounds what is actually classified as a Commercial Strata building.
The definition of a Commercial Strata building has now changed to include Residential Strata buildings where commercial enterprise accounts for greater than or equal to 20% of the floor space in a building.
Previously, Residential Strata buildings have been exempt from the Terrorism Insurance Levy, however, due to the widening of the eligible property definition this is no longer the case. The Australian Reinsurance Pool Corporation (ARPC) stipulates that “A Terrorism Levy will be charged on all Residential Strata Insurance premiums where one or more single buildings have a Sum Insured equal to, or greater than $50 million.”
Why have these changes been made?
Amendments to the Act have occurred due to the increased number of mixed-use Strata buildings being developed. Many large residential Strata properties now include numerous commercial operations, for example; restaurants, gyms, offices, etc. and the government saw the need to widen the eligible property definition to include them in compensation that can be paid out under the Terrorism Insurance Act.
The clarifications will benefit insurers and policyholders by filling mixed use/high-value building gaps and removing uncertainty in the event of a Declared Terrorist Incident involving biological or chemical material. These changes are said to modernise Scheme coverage, underpin its financial strength, and ensure the ARPC is better equipped to protect Australia from the economic losses caused by a terrorist catastrophe.
If you have any questions or would like to discuss any issues or concerns about this change further, please contact our brokers today for more information. Alternatively, you can read more on the ARPC site here.