A residential strata insurance product is a general insurance product and has traditionally been treated as a financial product. This means that all the obligations under the Corporations Act apply, including the requirement that the insurer provide a Product Disclosure Statement (PDS) and Target Market Determination (TMD).
What is strata insurance?
Strata insurance covers buildings and property governed by body corporates or owners’ corporations, and the shared areas separate to a customer’s property or contents. Strata insurance covers things such as garages, driveways, stairwells, roof-top gardens and swimming pools.
Where strata is involved, rather than owning your own stand-alone house, you own a particular unit or lot as well as collectively owning the common area and communal spaces with other lot owners. Generally, there are four types of strata:
- Residential strata comprised of residential buildings such as apartment blocks and townhouses.
- Commercial strata comprised of commercial buildings such as retail spaces and warehouses.
- Industrial strata comprised of commercial spaces primarily used for manufacturing, warehousing, freight and logistics.
- Mixed strata comprised of a mixture of any of the above.
Regardless of whether the strata type is primarily commercial or industrial, where a strata property includes any residential use, any insurance covering the property will meet the residential building insurance test. That is, where a part of the building is used for a residential or domestic purpose, such as place of residence or out-building or structural improvement used for a domestic purpose, the strata insurance is treated as home building insurance, which is provided to retail clients and an insurer is required to issue a PDS.
Surprise Exclusion!
Startlingly, in New South Wales, Victoria, Queensland and Tasmania, strata insurance is not a financial product. Under strata or body corporate management legislation in those States, an owners’ corporation is excluded from the operation of the Corporations Act. This means strata insurance is not a financial product in those States. Strata managers are not required to be Authorised Representatives or distributors, and insurers are not required to issue a PDS or TMD.
That said, it may be practically difficult to rely on this exclusion in some States but not others where the exclusion does not exist. Additionally, ASIC has not released any guidance on this exclusion.
How we can help
Providers of strata insurance may be understandably hesitant to rely on the exclusion. If you have questions or would like advice, we can help.
For more information, please contact Jaime Lumsden and Stephanie McClelland.
