Why you may be underinsured

Underinsurance is where you are insured for less than approximately 80% of the value of the property itself or the income you derive from it. Inaccurate estimations as to the cost of repairs or rebuilding may trigger the insurer to apply this clause, or you may have completed renovations which have increased the value of your property but not updated your policy. In addition, your policy may be outdated and not reflect changes in market trends, leaving your payout amount significantly less than the current cost of replacing your property.
Underinsurance can also apply to loss of rent claims for property owners. Whilst your commercial property insurance policy may protect against loss of rent, you need to ensure the limit of liability set is an accurate reflection of rental income received during the policy period and also accounts for additional outgoings paid by the tenant.
It is important to include variable outgoings in rental loss calculations when loss of rent is to be included in an insurance policy. Variable outgoings, or operating expenses, are landlord expenses that are usually contributed to by tenants for a specific purpose. In essence, they are the costs of operating, repairing and maintaining a property, and typically include rates, taxes, cleaning, and more.
To protect against underinsurance, variable outgoings are best devised by either calculating a base amount that is an annual projection to be paid proportionately in periodic instalments with rent, or a final adjustment made at the end of a financial year. Additionally outgoings can also be paid in arrears once receipts are received by the lessee from the lessor. This ensures that the amount paid reflects the true value, and so can be adequately included in an insurance policy.

Are rental increases included in your policy?

You may also be left underinsured in a loss of rent claim if your policy does not take into account the propensity for periodical rent increases during the policy period. Relying on an updated policy every few years may feel like an acceptable option, but in reality will place you at risk of a loss of income if your rental payments have increased over this period and not been reflected in the policy limit set. Ensure that your policy allows for such increase.

So check your policy now

Don’t wait until it’s too late to find out whether you are underinsured. Call Challenge Insurance Services on 1300 656 243 today for the most up to date, industry leading insurance advice in keeping you and your interests protected.

What is a collaborative strata property arrangement?

A collaborative strata property arrangement refers to the holding of strata title in collaboration between a number of parties. The arrangement is devised with input from all parties in the interest of achieving the best possible outcome for all.
So how do you find the best strata insurance policy for everyone?

Start with the right type of insurance

As obvious as this is, many consumers fail at the first step by choosing the wrong type of insurance policy from the outset. A home and contents policy does not include the common interests of a strata property, such as shared driveways, facilities and services nor does it insure the strata companies’ commercial exposure to legal liability, fidelity, office bearers and audit claims. Strata insurance is specifically designed to provide cover for a strata titled property and is the first step in choosing the most beneficial cover for all unit owners.

Use a broker

The quickest way to source a comprehensive and accurate strata policy is to take advantage of the services and skills of a professional insurance broker, in particular one experienced in providing strata insurance. Given these products are specialist policy, the majority of strata insurers only deal with insurance brokers and do not deal direct to the public. Importantly, not all policies are equal so by speaking to an industry professional they will be able to provide advice and recommendations specifically for the property that you are insuring.

Insure for the full replacement value

There is a temptation to insure for less than the full replacement value. This does not fully mitigate against risk and leaves unit owners open to financial ruin. Do not be tempted to underinsure your property, and seek a valuation every few years to ensure that the limits set out in your policy sufficiently cover the replacement costs you could be liable for.

Inform yourself

Take pre-emptive steps to know all details of your strata property that your insurer will need to organise for your policy. This includes the age of the building, whether it is heritage listed, pervious claims incurred and any existing damage or defects.

Collaborate!

If you are organising strata insurance on behalf of others, keep them in the loop and involve all parties in the decision making process. Strata titled property with more than 4 units should have a ‘Council of Owners’ appointed to make decisions on behalf of all unit owners. This ensures that all unit owners are fully aware of what is and isn’t covered by the policy, and any responsibilities that they have as a strata property owner.

Speak to a professional insurance broker

You know it makes sense to let the best help you with property insurance. Call Challenge Insurance Services today on 1300 656 243 to make sure that your strata property insurance is as good as it can be. Also, keep in mind that all information in this blog is of a general nature and advice should be sought for your specific property from a broker.

Your most valuable asset

When it comes to what could be your most valuable asset, would you entrust someone you may never meet to insure it? It is never a good idea to allow the tenant to choose the insurance for the property. Of course, they can choose whichever insurer they like for their contents and own goods within the property, however when it comes to the property itself – think twice.
Don’t leave yourself open to financial risk by leaving the decision on how and who to insure with in someone else’s hands. After all, you are financially responsible for the property and will have to bear the costs should an insured event take place. There are many things which can go wrong including but certainly not limited to:
• The tenant may not receive adequate insurance advice, resulting in the property being underinsured. There is potential for a loss to occur which may trigger an underinsurance or ‘average’ clause with the insurer, leading to a reduced claim settlement.
• The tenant could cancel the insurance at any point. You cannot control the actions of the tenant in this regard if you empower them to take the policy out in the first place. The tenant could at any point cancel the policy or they could simply default on payment and not renew the policy. Both circumstances leaving the property completely uninsured which is a direct financial exposure to you, the property owner.
• The tenant may not have all relevant information about the property. This means that they could end up leaving some information undisclosed or not declared to the insurer. For example not disclosing a claim history, providing inaccurate building details, or not informing the insurer of a major change to the risks would render the policy null and void in the event of a claim.

The solution

Leaving the responsibility of insuring your property to the tenant is a flawed approach. As a property owner you should always be in control of your own insurance program. The best way to re-coup the costs of the premium, which is general practice, is to apply the cost to the outgoings payable by the tenant.
Protection of an asset as important as your investment property should not be taken lightly. Leaving the task in the hands of anyone but a qualified professional can have consequences and leave you open to greater financial risk should something go wrong.
The protection of your property should always be undertaken in conjunction with a suitably qualified insurance advisor such as a specialised property insurance broker. If you require more information or advice regarding your property insurance, contact Challenge Insurance Services today and we will be more than happy to help.

Strata Insurance basics

Strata insurance provides insurance for lot owners, for example the building and Public Liability risk attached to it, as well as the legal entity the lot owners belong to, that being the strata company. It is often overlooked that a strata titled property and the council of owners form a legal entity that has exposure to commercial risks that a regular home owner does not.
In the main, the strata insurance policy is insuring such risk as:
• The building
• The common areas of the property such lifts, pools and car parks
• As well as loss of rent and/or temporary accommodation costs
• Public liability and a number of other elective options
It is the elective nature of a strata insurance policy that can lead to exposure for its policy holders. There is no ‘standard’ policy and each strata policy can be designed for those advising on the establishment or managing the policy, to be as comprehensive or as minimalistic in terms of what cover is provided.
It is important to note that the policy your strata has in place is only as adequate as the advice you receive when designing and negotiating the policy with your strata insurer. A strata policy is made up of multiple sections and each policy section is optional and NOT included as standard by the insurer.

Using an agent to obtain Strata Insurance

As a property owner you may appoint a strata management agent to manage the financial, insurance and administrative side of your strata property scheme. An agent can be very helpful with arranging the day-to-day management of the property. However caution should be used when an agent is provided with authority to arrange the strata company insurance. Typically property managers are acting as agents of only one insurer and paid commission by that insurer to place all strata policies with them.
This strata insurance policy may not necessarily be the most suitable for your property nor the most competitive premium-wise. The strata agent on average will receive from 15-20% commission from the insurance premium when placed through their agency. The government requires that agents be transparent in how much commission they are receiving from the insurers. However there is still debate on the subject as the owners best interest is not placed first, but rather in the interest of the insurer and the agent striking a partnership. There are many more policies out there to compare rather than just the one through the agent.

Using a direct insurer to obtain Strata Insurance

Taking things into your own hands and dealing directly with an insurer provides you with control, however also provides you access to a very limited market and you will only receive general advice from that insurer about the product along the way. You may approach the few insurers who offer strata insurance direct, however this can be a rather time consuming process with limits to what information you will be able to obtain.
The general insurer may not be aware of specifics about your property and is not licensed to provide anything other than general advice about their own insurance product.

Using a broker to obtain Strata Insurance

Insurance brokers also receive a commission, however brokers have access to the entire insurance market. This means access to multiple insurers and multiple insurance options for the strata owner providing the most comprehensive, detailed, and value for money options on the market. Due to the scale and size of the broker market, the deals a broker receives can be more competitive than if you approached the insurer yourself.
A broker is also licensed to provide advice regarding each policy and the variations between policies and insurers on the market. It is a broker’s professional duty to adequately inform and assist your strata company to avoid the pitfalls of an uninsured loss. A strata manager is not licensed to provide this expert advice.
Dealing with an insurer direct also means that the product selection is limited and you will have to rely on your own knowledge of insurance products to make the right choice on behalf of the strata, leading to exposure for claims by the unit owners if you as the strata council do not undertake this correctly. This can prove difficult for a layman with the ever changing insurance market.
The benefits of using a broker become very real and measurable come claim time. A broker is able to negotiate the best deal for your strata property rather than one with a bias partnership or limited product knowledge. They will also know the best advice to give regarding the marketing and products available to your specific type of property and property features. Brokers can also negotiate directly with insurers to get better deals for the pending insurance program. A strata agent is restricted by whatever terms the insurance partner has forced upon them.
Leaving the options in the capable hands of a broker is the best choice you can make for your strata property insurance program. Get in touch with Challenge Insurance Services today to find out how we can help you save on strata property insurance.

Why commercial property?

There are numerous benefits of purchasing and leasing out a commercial property as opposed to a residential property.  The first is relative to the lease period for a commercial property. This is generally a fixed period, much longer in duration than a residential lease.  Where typically residential rentals lease for 6 months to one year, a commercial property is leased in agreement for 3, 5, or 10 years.  This added length of lease time adds stability to the investment.

The maintenance of a commercial property is also covered by the lessee. For example council rates, or repairs are commonly paid for by the tenant. Making the net rental income higher than that of a residential property where these are paid for by the owner and deducted from rental income.  The quality of tenant is generally of a higher quality when it comes to commercial property than with a residential rental property.

While a commercial property vacancy can on average take a longer time to fill than a residential property, the higher risk associated with commercial property comes with a higher return on the investment when it is occupied. Smart investors are those who can match supply with the right rental product at the right time.

Commercial property insurance – Anticipate the risks

When it comes to commercial property insurance for your investment you will need advice to source an insurance policy to protect your exposure as landlord against the main areas of potential financial loss.  These include:

• Loss and/or damage to the building itself including – improvements, fences, signage, outdoor property not attached to the building
• The building contents including – furniture, supplies computers, records and documents, stock, personal property, plant and machinery
• Loss of income as a result of major damage to the property, leading to a break of the lease ( property uninhabitable )

The property should also be insured against loss and/or damages due to:

• Fire
• Weather damage such as storms, winds, hail, lightning strikes
• Vandalism, burglary and crime
• Accidental damage, and
• Floods, earthquakes or other natural disaster event

It is imperative you receive the right advice on these policy sections from your broker because there is no ‘standard’ commercial insurance policy – each policy needs to be custom designed to suit the needs and risks of that location and owner.  The insurance costs are generally passed on to the lessee as per the tenant agreement contract.  Every property is unique and will have its own unique set of insurance risks associated with it.  If you require assistance with your commercial property insurance contact Challenge Insurance Services today and we will be more than happy to help.

What is premium funding?

A premium is the payment you make for your insurance.  Hence, insurance premium funding is when you receive help with making this up-front payment.  The fund pays for it on your behalf, and you are then enabled to spread out the costs of that premium over a year, paying back in regular instalments instead.

Premium funding is very popular with businesses across different industries, especially those with high premium outlays for their insurance.  It can help to loosen the financial strain on any business, big or small and free up that all important cash-flow. By eliminating the need to pay up-front, you are opening your business up to more financial opportunities.

What are the benefits to premium funding?

Premium funding acts as a convenient cash flow solution.  You can avoid the initial outlay that comes with premiums for strata properties.  Added benefits include:

• Flexibility – You can generally choose how often you would like to pay, monthly, quarterly, or perhaps every 6 months, at a small interest charge.  Payment options can also generally be tailored such as direct debit, just ask a specialist broker.
• Meet your financial needs – By having the premium paid for, the financial burden is lifted and you are able to put the money wherever you need to.  Your yearly premium will be paid for in full on your behalf, and then all you have to do is meet the monthly instalments.
• Free up capital – Open yourself up to other investment opportunities where working capital can make you more profit and generate a greater income. You might have plans to finance other planned works or investments. 
• Preserve your reserves – Property investment can erode your reserve funds, making then unavailable for further investment. Premium funding preserves your back up cash in case you do need to utilise it. 
• Keep it simple and separate – Premium funding is not through your bank so you don’t have to worry about overdrafts or the service interfering with existing financial arrangements
• Multi-use – You can use premium funding for more than one policy at a time
• Tax deductible – Still not convinced? Premium funding is tax deductable in most cases.  Confirm with your accountant for more details as this is general advice only.

Premium funding extends to most types of commercial and strata insurance policies. It is a very flexible and convenient way to manage your larger insurance fees. At Challenge Insurance Services we have access to some of the best premium funders available.  You will in turn be able to fund your strata insurance in the most effective way possible and put your spare cash where it can return you more.  After all, that is what property investment is all about. We look forward to hearing from you soon.

Owning your own commercial investment property can be very financially rewarding, however it also opens property owners up to potential financial risks when rental tenants go astray.  If you are left in the lurch with your tenant owing money for rent, you can be left very much out of pocket for not only rental loss, but also ongoing costs of maintaining the property before you can find another tenant. 

Why do I need rental loss insurance?

You can never predict what might happen with your tenants.  Your property might be successfully leased out and then you find yourself chasing rent because the tenant has had financial losses of their own, or the property comes damaged or destroyed and the tenants can no longer utilise it. 

Here are out top five reasons why you might need to claim for rental loss:

1. Evicting tenants – You might need to go about evicting your current tenants for any number of reasons.  They might be consistently late on rent, be treating the property with neglect, or there might be illegal activity occurring on the premises which you have come to find out about.  These are all valid reasons for evicting a tenant.
2. A tenant who leaves owing rent – Your tenant may leave the property for their own personal or financial reasons.  They may find themselves struggling to keep up rent, or have done something to the property which they do not want to be held accountable for.  In any case, a tenant leaving suddenly leaves the property owner needing to keep up repayments and ongoing costs of maintaining the property which would have been covered by rent money.  If the tenant was behind in rental payments when they left, it can be difficult to recoup these costs, even with debt collectors involved.
3. A tenant who leaves before their lease has expired – If your tenant has broken the lease you will need to swiftly find someone to replace them so that you do not have to pay for ongoing costs yourself.
4. A tenant who refuses to leave your property and won’t pay rent – In some cases there may be a dispute over the property where the tenant will not leave, so they cannot be replaced, however they are also refusing to pay rent resulting in losses for the property owner.
5. Tenant issues – Your tenant may have been dishonest and stolen from the property, vandalised the property, or caused damage. The time taken to repair these damages and replace or recover property can be very costly.

What are the costs?

If you are owed rent on your commercial property you may be faced with rent owing in arrears, no current tenant to replace and keep the costs down, time spent on assessing the damage or dealing with the issue, and of course ongoing costs.  Costs of running the commercial property can include utility bills, land tax, and loan.  It is vital to have insurance in place to account for these costs in case of a loss.

How do you recover the costs?

Some loss of rent can be recouped from the bond money, however in cases on property damage, vandalism, theft, or extremely difficult tenant issues, there are much higher costs at stake.  Insurance can cover rent default and associated legal costs, and the loss of rent due to the property becoming unusable due to damage.  In this case, your rental income is protected even if the unexpected does happen.

An experienced and knowledgeable insurance broker such as Challenge Insurance Services can provide the necessary expertise to assess the risks at your commercial property and provide a comprehensive rental loss package.  Contact CIS today to find out how we can help you.

Commercial property owners need to be aware that their lease agreements should clearly define what the responsibility of the property owner is and what is the responsibility of the tenant.  Many lease agreements however, are a standardised document which does not always directly address the insurable requirements of each party.  The insurance policy should be considered when preparing the lease and visa-versa.

Lease and Commercial Property Insurance Issues

The lease agreement and the property insurance should dove-tail with each other, working together cohesively to provide comprehensive and concise cover.  Both are binding contracts, so it is critical that the conditions included in both contracts marry.

In most cases however, this is not the case and this is where property owners and tenants can experience financial loss. 

Lease wording

It is common practice for property owners to specify to the tenant in the lease that they will be passing down the costs of the insurance to them.  The type of insurance engaged by the property owner may overlap with the insurance taken out by the tenant, therefore overlapping and wasting money for both parties.  And to counter this, the type of insurance policies in place may even miss major parts of the property owners requirements.  Meaning that the property owner is left open to financial loss.

It is our recommendation that the property owner take out the insurance for the property and outline what is and what is not covered to the tenant.  Your most valuable asset should always stay within your control and the insurance policy is a key part of this. When it comes to renewal, adjustment of policy and comprehensive cover, a professional commercial property insurance broker will do it best – this is not something to put in the hands of an inexperienced tenant.

General coverage

When revising your lease agreement and your property insurance policy, there are some common policy elements to cross-reference with your lease agreement.

Public Liability – If maintenance issues, toxic substances on the premises, incorrect building techniques or other property issues cause damage to third party property or result in personal injury, the property owner can be held liable. 

For example, not maintaining a shade cover on the premises which then falls down, injuring a person or damaging a car parked underneath could lead to the property owner being held liable and having to pay the costs for repair and medical bills.  Public liability insurance will ensure that these costs are covered by the insurer.

Property owners can also be held vicariously liable for incidents where their contribution or fault in a claim is only limited. Even though they may be deemed to have only a small degree of liability the potential for significant costs to defend a claim is present. If a Public Liability policy is held, your insurer meets these defence costs instead of drawing from your own cash reserves.

Contents and Glass – This type of insurance is generally taken out by the tenant.  Whatever fixtures within the building such as contents, plant, fit-out and stock are the responsibility of the tenants to insure within their own insurance program. Glass windows and displays can also be covered by their insurance policy which is generally reflected in the lease agreement 

Machinery and Plant – The insurance for the machinery breakdown of plant and equipment includes elements such as air conditioning, electric gates, elevators and automatic doors. Lease conditions can enforce either party (owner or tenant) responsible, ensure this is clearly drafted and insured accordingly.

Loss of rental income – The lease can state that the tenant is responsible for the payment of property owners insurance.  This can also be extended to include the protection against loss of rental income.

At Challenge Insurance Services we have access to the best possible products to insure your commercial property and take away the worry of being underinsured. We have the experience, knowledge, and contacts to deal with your property insurance and claims effectively and most importantly have an in depth knowledge of lease agreements.  Contact us today for some advice and a quote, we will be more than happy to help you.