Most strata responsibilities cost a little if you get them wrong. Insurance is different. Get insurance wrong, and a single bad day, a fire, a storm, a major flood, can leave every owner in the scheme facing a bill they cannot pay. It is the highest-stakes thing a committee handles, and it deserves real attention.
The reassuring news is that the basics are not complicated. A NSW owners corporation has a duty to insure the building and common property, and the committee oversees that this is done properly and kept up to date. This guide explains what committees need to get right, in plain terms.
The framework below is general. The precise insurance obligations and valuation requirements can change and can depend on your scheme, so confirm the current rules with NSW Fair Trading or your strata managing agent.
Why the scheme insures the building, not the owner
In a strata scheme, the building and common property are owned collectively. No single owner owns the roof, the external walls or the shared structure. So it would make no sense for each owner to insure their slice of the building separately. Instead, the owners corporation takes out one policy that covers the whole building and common property, and every owner contributes through their levies.
That is the heart of strata insurance. One collective policy for the shared structure, paid for by everyone. The committee oversees getting that policy in place and keeping it current. Where parts of the scheme begin and end, lot versus common property, is the same distinction that runs through maintenance and the duties we cover in a strata committee's legal duties.
What the cover includes
Broadly, the building and common-property insurance covers the shared structure, the common areas, and the things the scheme owns together. It is the policy that responds if the building is damaged or destroyed.
What it generally does not cover is an individual owner's contents, the belongings and many improvements inside each unit. That is the owner's own responsibility. For the precise scope of what the scheme's policy must include, confirm the current requirements with NSW Fair Trading, because the detail can change.
Replacement value: the number that matters most
The single most important figure in a strata policy is the replacement value. This is the amount it would cost to rebuild the building if it were completely destroyed. The insurance should be set at an adequate replacement value so the scheme is genuinely protected.
Here is the trap. Building costs rise over time. A replacement value that was right five years ago may be well short today. If a major loss happens and the policy is set too low, the payout does not cover the rebuild, and the owners have to find the difference, often through a painful special levy. This is the same financial exposure we describe in our capital works fund guide, arriving from a different direction.
Why valuations keep you honest
The way schemes keep the replacement value accurate is through regular valuations. A valuation is a professional estimate of what it would cost to rebuild, done periodically so the insured amount keeps pace with real costs.
For a committee, the discipline is simple: make sure the building is valued at sensible intervals and that the insured sum reflects the current valuation. A scheme that has not been valued in years is quietly carrying a risk it may not even know about. Confirm how often valuations are expected with NSW Fair Trading or your managing agent.
Where owners fit in
It is worth being clear with owners about the line between what the scheme insures and what they insure. The owners corporation covers the building and common property. Each owner generally arranges their own cover for their contents and the improvements inside their lot.
That line catches people out after a loss, when an owner assumes the scheme's policy covered something it never did. A committee that explains the split clearly, and points owners to confirm their own position, saves a lot of grief later.
What committees should keep on top of
- Make sure the building and common property are insured, and the policy is current.
- Keep the replacement value accurate through regular valuations.
- Review the cover before each renewal rather than rubber-stamping it.
- Keep the policy documents in the scheme's records where they can be found.
- Confirm the current insurance obligations with NSW Fair Trading or your managing agent.
Your next step
Insurance is the responsibility a committee cannot afford to get wrong. Archer Institute's Strata Members CPD course covers insurance, the funds, and the committee's duties under the Strata Schemes Management Act 2015, in plain English. It is online, self-paced, and built for the volunteers who run NSW schemes. For the wider role, see our strata committee member guide.
