Closing the Gap
In the world of property insurance, accurately determining the Building Sum Insured Value (BSI Value) remains a complex challenge. Traditional approaches, which often rely on Replacement Value formulations, fall short in covering both replacement costs and additional expenses. This gap in coverage has highlighted the limitations of existing strata titles acts and regulations in providing adequate protection for property owners.
Empowering Property Owners
The aim of this endeavor is to enhance the readiness of property owners in case of a disaster, given that individuals seldom comprehend the complexities of insurance Replacement Value and the corresponding amount of compensation involved. Attainment of sufficient funds can be accomplished by selecting the Building Sum Insured (BSI) Value that encompasses the entire estimated catastrophe cost. Prevailing legislation is characterized by a significant disparity due to the absence of linkage or harmonization in the formulation requirements of Replacement Value with both strata and general home building insurance.
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It is widely acknowledged that insurance providers limit their liability to spent costs due to legislative provisions that do not include provisions for additional benefits in cases of destruction, catastrophe, total loss, and constructive total loss—none of which are specified in legislation. There is a divergence in policies regarding the provision and implementation of supplementary benefits in strata insurance policies and a discrepancy with the protection framework regarding the safety net in home insurance policies.
Among the critical takeaways from this guide are:
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It is crucial to understand that the language employed in insurance policies reflects a cultural inclination to deny reimbursement for supplementary or extra costs.
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The failure to harmonise Strata and General Home Insurance has resulted in an ineffective approach to establishing a standardised method for formulating insurance that provides sufficient protection for replacement and additional expenses.
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The meaning of a Qualified Valuer and the notable absence of a registered insurance valuer practitioner, after the revocation of the Valuers Act of 2003 in March 2016.
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The improper Catastrophe Code and the lack of legal definitions of destruction, catastrophe, total loss, and constructive total loss.
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The negative consequences and unworkability of the 80% Average Provision Rule for Real Estate Insurance.
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The impact of improper New South Wales (NSW) Strata and Commonwealth legislation on property insurance values.
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The assessment of Indemnity Value, which is not viable and is often employed as coercion in property insurance settlements. In New Zealand, the utilisation of Indemnity Value Insurance is permissible where Replacement Value Insurance is not available.
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Irrespective of the presence of Mortgage Insurance, the provision pertaining to third-party beneficiaries in Commonwealth legislation possesses the ability to render your insurance entirely devoid of value if a bank or financier asserts a claim on your insurance policy for debt repayment.
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Ultimately, you will understand the significance of different insurance formulation methods and the selection of the BSI Value in relation to your overall well-being and ability to cope with the stress arising from your loss.
Kirkus Review
Cretikos presents a brief but thorough introduction to properly calculating an insurance value for one’s property.
"The author argues that there are fundamental flaws in the property insurance system, particularly in Australia, the principal country in his analysis. At the heart of the issue, he asserts, is Building Sum Insured Value (BSI), which is the monetary amount that the holder of an insurance policy receives in case of total loss. However, the formulas for calculating this amount are fatally flawed, Cretikos says, as they rely upon a calculation of replacement value—the value of the property immediately prior to the event that destroys it—and doesn’t factor in necessary supplementary costs, including temporary housing. Moreover, the standard formula neglects inflation over the policy period, and especially increased building costs. There’s currently “no legal definition of destruction, catastrophe, total loss, and constructive total loss,” nor a standardized interpretation of the competencies required to be a Building Insurance Valuation Specialist Valuer Practitioner. With impressive rigor, the author explains not only the technical challenges posed by the current understanding of BSI, but also preventative measures and techniques one can adopt to avoid being disastrously uninsured; for example, there’s a meticulous discussion of making a claim for the value of the contents of a property. Also, Cretikos carefully reviews inadequacies in the legal system that encourage too-low BSI valuations and suggests ameliorating legislation (although these discussions are mostly specific to New South Wales, Australia). He makes a strong case that the insurance industry is plagued by a “denial culture” in which companies aggressively attempt to avoid paying justified benefits, even if he does so in sometimes awkward prose: “Insurance providers employ deliberately crafted legal jargon to avoid making complete schedule-related payments that are rightfully owed, even if this results in the policyholder being compelled to bear out-of-pocket expenses that should be covered by Additional Benefits or other supplementary expenses.” Still, this brief instructional guide offers a wealth of practical knowledge.
An expert tour of some fundamental building-insurance issues."