Why Builder Insolvencies Are Becoming a Strata Insurance Issue

For owners corporations and body corporates, the issue is not simply whether a builder goes out of business. The bigger insurance concern is what happens next. If a contractor collapses part-way through remediation or claim-related works, the scheme may face delays, revised scopes, new tendering costs, increased site protection expenses and disputes over who is responsible for unfinished or defective work. In a tight construction market, replacement contractors may also price in uncertainty, pushing total repair costs higher than originally expected.

This matters for strata insurance premiums because insurers are increasingly focused on the real cost of putting a building back into its pre-loss condition. Reinstatement is not just about materials and labour. It also depends on contractor availability, professional fees, compliance upgrades, access constraints, temporary works and the time required to coordinate residents, managers and specialists. When the construction supply chain is fragile, those variables become harder to control.

The practical lesson for strata committees is to treat contractor selection and project documentation as part of risk management. Before major works begin, committees should check licensing, insurance certificates, financial stability indicators where available, warranty arrangements and the proposed contract structure. For larger projects, staged payments, clear milestones and independent superintendent oversight can reduce the risk of the scheme paying too much before work is complete.

Claims management also deserves closer attention. If insured damage is discovered alongside pre-existing defects or maintenance problems, poor documentation can lead to disagreement about what the policy should fund. Committees should keep maintenance records, defect reports, engineering advice, photographs and minutes showing how repair decisions were made. This evidence can help separate insured events from gradual deterioration or construction defects that may sit outside the policy.

There is also a renewal angle. A building with unresolved works, repeated water ingress, combustible materials, failed waterproofing or uncertain repair contracts may be viewed less favourably by insurers. Presenting a clear plan, supported by expert reports and realistic budgets, can make a meaningful difference when cover is being negotiated.

Where projects are complex, early input from strata managers, engineers, lawyers and a licensed broker may be able to assist committees understand both the insurance and contractual consequences before decisions become urgent.