INSURANCE INDUSTRY NEWS

How rising construction costs left dozens of Strata Schemes under protected

This article is based on fictionalised examples informed by real industry trends and valuation outcomes in NSW.

Construction costs have surged in recent years — and many strata schemes haven’t kept pace. This article uses composite examples to show how common underinsurance has become, and what owners corporations can do to protect themselves.

The Cost Increase Reality

Between 2021 and 2024, industry benchmarks show that average residential construction costs in NSW rose by more than 30%. Contributing factors included:

  • Global supply chain disruptions
  • Rising fuel and freight costs
  • Labour shortages in skilled trades
  • Regulatory changes affecting fire compliance and access

At Evolve Reporting, we have revalued dozens of properties during this period and found that several strata buildings were underinsured by 15% or more, even when CPI-linked indexation had been applied annually.

Real-World Examples

A three-storey apartment block valued at $4.5 million in 2019 required an updated insured value of $6.2 million in 2024.

A mixed-use building that was insured for $8 million was found to require $9.8 million, due to access challenges and construction complexity.

These discrepancies were often unnoticed until an insurance renewal flagged a sharp premium rise — or worse, when a claim highlighted the coverage shortfall.

The Legal Requirement

Under Section 85 of the Strata Schemes Management Act 2015 (NSW), an owners corporation must insure its building for full replacement value. The Strata Schemes Management Regulation 2016, Schedule 2, Clause 4, requires a valuation at least every five years.

However, legislation does not account for sharp or unexpected cost spikes. A five-year-old valuation with standard indexation may fall well short during volatile market periods — which has been the case recently. This is the reason at Evolve Reporting we strongly recommend our clients review their valuation annually.

Why Indexation Isn’t Enough

Indexation is generally based on consumer or construction industry averages. But real-world rebuild costs are influenced by:

  • Site-specific access
  • Local construction labour rates
  • Unique materials (e.g. stone facades, hardwoods)
  • Regulatory compliance updates (e.g. fire doors, lift systems)

These variables cannot be accurately captured through generic indexation, especially during periods of cost inflation.

Conclusion

The past few years have created a perfect storm of rising costs and outdated assumptions. Many strata schemes now face a real risk of underinsurance — often without knowing it.

At Evolve Reporting, we provide up-to-date, location-specific insurance valuations that reflect the real cost of reinstatement. Don’t let outdated figures expose your building to avoidable risks. A current valuation could save your owners corporation hundreds of thousands in a claim scenario.

Disclaimer: This article is for informational purposes only and is based on fictionalised scenarios. It does not constitute legal advice. Owners corporations should seek independent legal or professional advice for their specific circumstances.

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