Strata Insurance in Australia 2026: Underinsurance Risks, Commission Reforms, and How a Broker Can Help

Strata insurance is one of the most complex and consequential insurance decisions facing Australian property owners in 2026. With construction costs rising sharply, climate-related claims increasing, and significant regulatory reforms reshaping how insurance commissions are disclosed and paid, owners corporations and strata committees face a challenging environment. Understanding the risks of underinsurance and the value of an experienced insurance broker has never been more important for Australian strata property owners.

Understanding Strata Insurance in Australia

Strata insurance is a mandatory requirement for all strata-titled properties in Australia. It covers the building structure, common property, and common contents against a range of insured events including fire, storm, water damage, and public liability claims. Unlike home and contents insurance for freestanding properties, strata insurance is arranged by the owners corporation (or body corporate) on behalf of all lot owners — making it a collective responsibility with significant financial implications for every resident and investor in the scheme.

The sum insured must reflect the full replacement cost of the building, including demolition, debris removal, professional fees, and the cost of rebuilding to current standards. This is not the same as the market value of the property, and confusing the two is one of the most common causes of underinsurance in Australian strata schemes.

An experienced insurance broker can help owners corporations obtain accurate replacement cost valuations, compare policies across multiple insurers, and ensure the coverage terms are appropriate for the specific risks of the building and its location.

The Underinsurance Crisis in Australian Strata

Underinsurance — where the sum insured is insufficient to cover the actual cost of rebuilding after a total loss — is a serious and growing problem in Australian strata schemes. Industry data suggests that a significant proportion of strata buildings are insured for less than their true replacement value, leaving lot owners exposed to potentially devastating shortfalls in the event of a major claim.

Why Underinsurance Occurs

Several factors contribute to underinsurance in strata schemes. Construction costs have risen dramatically in recent years, driven by labour shortages, supply chain disruptions, and increased material costs. A building that was adequately insured three years ago may now be significantly underinsured if the sum insured has not been updated to reflect current replacement costs.

Climate risk is also a growing factor. Increased frequency and severity of extreme weather events — including floods, cyclones, and bushfires — has driven up claims costs and, in some regions, made certain risks harder to insure at all. Insurers are increasingly scrutinising building age, construction materials, and maintenance standards when assessing risk and setting premiums.

Building defects represent another underappreciated risk. Strata schemes with unresolved defects — particularly combustible cladding, waterproofing failures, or structural issues — may face restricted coverage, higher excesses, or outright exclusions from their insurer. Owners corporations that have not addressed known defects may find themselves in a difficult position when a claim arises.

The Consequences of Being Underinsured

If a strata building is underinsured and suffers a major loss, the shortfall between the insurance payout and the actual rebuilding cost must be funded by the owners corporation — meaning every lot owner faces a special levy to cover the gap. For a large strata scheme, this could amount to tens or hundreds of thousands of dollars per lot owner. An insurance broker can help owners corporations commission independent replacement cost valuations and ensure the sum insured is reviewed and updated regularly.

NSW Strata Insurance Commission Reforms 2025–2026

One of the most significant regulatory developments affecting strata insurance in Australia is the ongoing reform of commission arrangements in New South Wales. From February 2025, new disclosure requirements came into effect requiring strata managing agents to provide detailed breakdowns of insurance quotes, including all commissions and broker fees, and to notify the owners corporation in writing before entering any contract where a commission may be paid.

The NSW Productivity and Equality Commission (NSW PEC) has been conducting a review of the market impacts of potential bans on commissions and other conflicted payments in the strata sector, with findings informing further regulatory action. The Strata Community Association (SCA) NSW has committed to a voluntary, phased elimination of insurance commissions among its member managers, with many firms already transitioning to fee-for-service models.

These reforms reflect broader concerns about conflicts of interest in strata insurance placement. When a strata manager receives a commission from an insurer or broker for placing insurance, their incentive may not be fully aligned with the owners corporation's interest in obtaining the best coverage at the most competitive price. Transparency about remuneration arrangements is now a regulatory requirement, and owners corporations should ensure they understand exactly how their strata manager and any insurance broker are being compensated.

The Role of an Insurance Broker in Strata

An insurance broker acts as an agent for the owners corporation, not the insurer. Their legal obligation is to act in the best interests of their client — the owners corporation — when sourcing and placing strata insurance. This is a fundamentally different relationship from dealing directly with an insurer or through a strata manager who may have conflicted interests.

A specialist strata insurance broker can provide significant value in several ways:

• Market access — Brokers have access to a wide panel of insurers, including specialist strata underwriters, and can obtain competitive quotes that may not be available directly to owners corporations
• Coverage analysis — Brokers can compare policy terms, exclusions, and conditions across multiple insurers to identify the most appropriate coverage for the specific risks of the building
• Replacement cost guidance — Brokers can recommend independent quantity surveyors or valuers to ensure the sum insured reflects current replacement costs
• Claims advocacy — In the event of a claim, a broker acts as the owners corporation's advocate with the insurer, helping to navigate the claims process and achieve the best possible outcome
• Remuneration transparency — Under ASIC's regulatory framework, brokers must disclose their remuneration arrangements, including any commissions received from insurers, ensuring owners corporations can make informed decisions

Australian Regulatory Context for Strata Insurance

Strata insurance in Australia is regulated at both the federal and state level. At the federal level, insurance brokers must hold an Australian Financial Services (AFS) licence issued by ASIC and comply with the obligations of the Corporations Act 2001, including the duty to act in the best interests of their clients when providing personal advice.

ASIC's regulatory guidance on conflicted remuneration applies to insurance brokers, requiring disclosure of commissions and other benefits received from product issuers. The National Insurance Brokers Association (NIBA) Insurance Brokers Code of Practice, currently under review for 2025, sets additional professional standards for member brokers, including obligations around remuneration disclosure, complaints handling, and client communication.

At the state level, strata legislation in each jurisdiction sets out the insurance obligations of owners corporations. In NSW, the Strata Schemes Management Act 2015 requires owners corporations to insure the building for its full replacement value and to review the sum insured annually. Similar obligations exist in Victoria, Queensland, and other states, though the specific requirements vary by jurisdiction.

AFCA (the Australian Financial Complaints Authority) has jurisdiction to handle complaints about insurance brokers and insurers, providing owners corporations and lot owners with an accessible dispute resolution pathway if they are dissatisfied with how their insurance has been arranged or a claim has been handled.

Key Questions for Your Strata Insurance Review

Owners corporations and strata committees should ask the following questions when reviewing their strata insurance arrangements:

1. When was the building's replacement cost last independently assessed, and does the current sum insured reflect current construction costs?
2. What commissions or fees is our strata manager or broker receiving for placing this insurance, and have these been fully disclosed?
3. Are there any known building defects — including cladding, waterproofing, or structural issues — that may affect our coverage or create exclusions?
4. Does our policy cover the full range of risks relevant to our building's location, including flood, storm surge, and bushfire where applicable?
5. What is the claims process, and does our broker provide claims advocacy support?
6. Are we comparing quotes from multiple insurers, or are we relying on a single quote arranged by our strata manager?

How MyMoney® Can Help

Navigating strata insurance in 2026 requires specialist knowledge of the insurance market, regulatory requirements, and the specific risks of your building. An experienced insurance broker can help your owners corporation obtain the right coverage at a competitive price, ensure your sum insured is adequate, and act as your advocate in the event of a claim.

MyMoney® connects owners corporations and strata committees with qualified, licensed insurance brokers who specialise in strata insurance across Australia. Whether you need a comprehensive insurance review, an independent replacement cost assessment, or help navigating a claim, our marketplace makes it easy to find the right professional.

Post a Brief to receive tailored proposals from specialist strata insurance brokers, or Browse Insurance Brokers to find experienced professionals in your state today.