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MORE THAN 3.2 MILLION AUSTRALIANS, including a quarter of Greater Sydney residents, live in high-density housing, with the figure expected to increase by another million over the next decade. The total value of strata assets is estimated at more than $1.8 trillion, tipped to rise to $2.2 trillion by 2022. This all makes the strata insurance market look very tempting indeed, and new entrants have gathered like moths to a flame. But the sector is not without its challenges as it starts to become a victim of its own success and prospects. Rates are being forced down to almost unsustainable levels as insurers fight for their share of the market, and increasing complexity and regulations require ever more in-depth knowledge. Affordability in north Queensland and the growing use of new, sometimes nonconforming, building materials can be added to the list of issues keeping strata insurance professionals awake at night. Steadfast-owned CHU wrote its first strata policy in 1978, and Chief Executive Bobby Lehane says Australia’s population growth, increasing urbanisation and preference for high-density living point to a bright future for the sector. Both vertical (high-rise) and horizontal (community associations and planned estate) strata properties have attracted significant investment over the past decade, he says. “We have seen the size and scale of these developments grow as land becomes more expensive and developers need to increase the density of developments to maximise the return on their investment.” Craig Hodgson, General Manager of QUS, which entered the market in 2008, says the trend towards higher-density living will only increase. “As a result the strata insurance market will continue to grow significantly over the next 10 years and is probably one of the very few insurance markets that is able to say that.” But the sector – once the province of a select few – is becoming overcrowded as everyone tries to grab a piece of the action. There is talk of a price war, and allegainsuranceNEWS

August/September 2015

tions of irrational premium reductions of 30% and more. Ryan Houston, National Manager at CGU-owned Strata Unit Underwriters (SUU), says while falling premiums are good for consumers, long-term sustainability is a concern. “The market feedback regularly indicates some competitors discounting their renewal business upwards of 30%, even when the long-term claims performance doesn’t support this reduced pricing,” he tells Insurance News. “We’ve been around for more than 15 years in the strata market and think we have a good handle on how it works. “The current environment is feeding the price-focused nature of consumer behaviour and moving well away from other, equally important considerations such as an underwriter’s experience, security, product quality and service, reliability and longevity.” Managing Director of Allianz partner Strata Community Insurance (SCI) Paul Keating believes some participants in the strata insurance business are in the middle of “earn-out” periods following mergers and acquisitions. “We have one whose strategy is to write as much as they can to gain a certain market share as quickly as possible,” he said. Longitude – part of Sura and underwritten by Vero – and QUS are among those singled out as conducting an aggressive approach. But neither company sees it that way. QUS says is has invested heavily in developing a rating algorithm with a view to writing good-quality risks at the right price. “This investment has meant we have found ourselves very competitive on some risks and not so on others, where our competitors may be using a more broad rating approach,” Mr Hodgson says. Likewise Longitude, formed in 2012, says it has a “very clear pricing strategy” and as a result has lost 80% of its portfolio in one region. “We have lost significant business in certain markets where pricing has been unsustainable,” Managing Director Jesse Borthwick tells Insurance News. “If we’ve got 55

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