Why are sectional title insurance premiums rising, and what trustees can do about it?

Sectional title insurance premiums are rising mainly because insurers are experiencing higher and more frequent claims, increased rebuilding costs, and greater exposure to preventable losses, particularly from storm damage, geyser failures, poor workmanship, lack of maintenance and underinsurance. When a scheme’s claims ratio* is high or risks are not well managed, insurers adjust premiums and terms to reflect that increased risk. Claims ratio* is the ratio of claims versus premiums and, for larger schemes in particular, needs to be in the range of 35% to 55% on average over time.

For trustees, this means that rising premiums are usually not “just the market”. They are often a signal that something within the scheme’s risk profile needs attention.

Here are a few reasons we have identified:

1. Higher and more frequent claims

Insurers are paying more claims more often, especially for:

• Storm and wind damage
• Geyser bursts and water damage
• Roofing failures and water ingress
• Flooding and surface water

Where claims are frequent or repetitive, insurers view the scheme as higher risk and price upwards accordingly. This is especially true in schemes following a few consecutive years of storm claims, where claims ratios creep upwards, instead of tapering off over time.

2. Rising rebuilding and repair costs

Construction and repair costs have increased significantly in recent years. This affects:

• Replacement valuations
• Claims settlement costs
• The overall exposure insurers carry

As building costs rise, so does the amount insurers are at risk for, and premiums follow.

In other words, premium increases need to follow rises in building costs. The overall building inflation rate may increase by 5% to 10% per annum, but a fluctuation in steel, geyser and plumbing costs in one year may be 15%, where say 70% of a scheme’s claims may be.

3. Underinsurance and valuation gaps

Many schemes are unknowingly underinsured because valuations are outdated or escalations are insufficient.

When a claim occurs, and the insured amount is not enough, it often leads to:

• Co-insurance penalties (being penalised for average*)
• Disputes
• Delays
• And increased risk for insurers going forward

*Average – Reduces a claim payout in proportion to how much the building is underinsured.

Put simply, if you insure your building for less than its true replacement cost, the insurer treats you as if you agreed to carry part of the risk yourself, and they only pay the same proportion of the loss as the proportion you insured.

This makes insurers more cautious and often leads to higher premiums or stricter terms following such.

4. Poor or absent risk mitigation

Insurers look closely at whether risks are being managed, not just insured.

Examples include:

• Ageing or unmanaged geysers, higher than average geyser replacement
• Lack of roof maintenance or inspections
• Repeated water ingress issues
• Non-compliant building work

Where mitigation is weak or absent, insurers see losses as preventable and price more defensively.

5. Claims ratio and scheme behaviour

A scheme’s claims ratio is one of the strongest indicators insurers use.

Even relatively small claims, if frequent, can push a scheme into an unfavourable risk category.

It’s not only the size of claims that matters, but it’s also the pattern.

What trustees can do about rising premiums

Trustees are not powerless in this process.

A structured insurance review can help trustees:

• Understand what is driving the scheme’s premiums
• Identify which risks are structural and which are incidental
• Check whether valuations and sums insured are realistic
• Assess whether claims patterns point to preventable issues
• Ensure fidelity and liability cover reflect real exposure

This turns premiums from something that simply “happens” into something that can be influenced.

Why it is not about finding a cheaper insurer

Switching insurers may reduce premiums in the short term, but if the underlying risks and claims patterns remain unchanged, premiums will usually rise again, sometimes sharply or worse, harsh terms from the insurer, or notice to cancel cover.

The more sustainable approach is to address causes, not symptoms, improving risk quality over time

Build a profile that insurers see as stable and well-managed, leading to better long-term outcomes.

This kind of review is most useful for residential schemes and trustees that:

• Have a stable owner and tenant profile
• Want to reduce surprises and volatility
• Are willing to think in 3–5 year horizons, not just annual renewals
• See insurance as part of good governance
• Understand that sustainable premiums trump cheapest possible premium

It works best where trustees, managing agents and advisors are aligned around transparency and structure.

Final thought

Rising premiums are rarely random, but rather signals about risk, behaviour, structure and sustainability. I refer to a 60% plus claims ratio as a red flag.

Trustees who pay attention to those signals and act early tend to experience fewer shocks, better insurer relationships, and more stable outcomes over time.

A sectional title insurance review is not about changing insurers, but it is rather about understanding what is driving the numbers and putting the scheme in a better position for the future.