The Hidden Risk of Underinsurance in Body Corporate Schemes
14 April 2026
What Is Underinsurance?
Underinsurance occurs when the amount a building is insured for is less than its actual cost to rebuild. If the building suffers a total loss — fire, catastrophic storm, flood — the insurance payout falls short of what it would actually cost to rebuild, leaving owners to make up the difference.
In body corporate schemes, this difference can be enormous. And it is more common than many owners realise.
Why Underinsurance Happens
Stale insured values: The most common cause. A valuation is done once and then not updated for years, while construction costs rise steadily. After five or ten years without reassessment, the insured value can be significantly below the current replacement cost.
Market value vs replacement value confusion: Some committees set the insured value based on the market value of the lots in the scheme. This is wrong. The insured value must reflect the cost of rebuilding — demolition, professional fees, new construction at current rates. In some markets these are very different numbers.
Construction cost inflation: Building costs in Queensland have risen sharply in recent years. A valuation from 2019 is almost certainly inadequate today.
Premium pressure: Some committees deliberately set a lower insured value to reduce the annual premium. This is a false economy that exposes all owners to catastrophic financial risk.
What Happens If the Scheme Is Underinsured?
If the building is destroyed or severely damaged and the insurance payout is less than the actual rebuilding cost, the shortfall is a liability of the body corporate — which means all lot owners are liable to contribute through a special levy.
For example: if a building costs $8 million to rebuild but is insured for $5 million, owners collectively face a $3 million shortfall. Spread across 20 lots, that is $150,000 per lot — on top of the disruption of losing the building and potentially their home.
How to Check Whether Your Scheme Is at Risk
Ask when the last independent insurance valuation was conducted. The BCCM Act requires an assessment at least every five years. If the body corporate cannot answer this question or if the last assessment was more than three years ago, there is a risk.
Compare the insured value to current construction costs. A rough guide: in Queensland, full construction costs for residential strata are typically in the range of $3,000–$5,000+ per square metre of gross floor area (this varies significantly by building type and location). Multiply by the total floor area of the scheme. If the insured value is significantly below this, investigate further.
Raise it at the AGM. Any lot owner can ask the committee to commission an updated valuation. This is a legitimate and important governance question.
The Solution
Commission an independent insurance replacement cost assessment by a qualified quantity surveyor or building consultant. This is not expensive relative to the protection it provides. The committee should budget for this every two to three years, not just every five.
If the current insured value is materially below the assessment figure, increase it immediately. The short-term premium increase is insignificant compared to the risk of carrying an inadequate policy through a major event.
This article is general information only and does not constitute legal advice. For advice about insurance matters specific to your scheme, consult an insurance broker or strata lawyer.
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