Contractor insurance requirements

How premiums for units and multiple dwellings are calculated

If an individual unit owner of a multiple dwelling or duplex contracts with a contractor to perform insurable work within their unit, and the value of the work is over $3,300, then the insurance premium is based on the value of that work.

If the Body Corporate contracts with a contractor to perform insurable work on the common property of a multiple dwelling or duplex “notional pricing” may apply.  Notional pricing may also apply where the owner of multiple units engages a contractor to perform insurable work in each of those units under one contract.

Notional pricing

Notional pricing, whereby the premium payable is calculated based on the notional price of the work being performed multiplied by the number of units in the multiple dwelling, has applied in Queensland since 1992.  Where notional pricing applies, each unit owner gets $200,000 cover, and common property gets up to $1M cover.  

Note - higher compensation limits apply where optional additional cover has been obtained.

How notional pricing works

Premium payable = (premium for the notional price per unit) x (the number of units)

The “notional price per unit” is determined by taking the value of the works and dividing it by the number of units.  For example, if the value of the insurable work being performed was $150,000, and there were 5 units, the “notional price” is $30,000:

150,000 divided by 5 units  = notional price of $30,000 per unit

The premium payable for a renovation job valued at $30,000 is $354.95.

The total premium payable in this example is $354.95 x 5 = $1,774.75.

Fairer premiums introduced on 28 October 2016

Notional pricing has been a source of much complaint over the years as small maintenance jobs can have high premiums.  Unfair premiums also resulted where a related insurable building like a shed was being built.

Steps were made to address these issues in the most recent amendments to the Queensland Home Warranty Scheme which came into effect on 28 October 2016, by restricting the circumstances when notional pricing applies for smaller jobs.

Under the reformed Queensland Home Warranty Scheme whether notional pricing is applied depends on the work being performed and its value.

Work on the footings of a multiple dwelling or duplex

Where the work is for the footings of the building, notional pricing applies like it always has. A premium is payable on a per unit basis for all insurable work above the insurable work threshold of $3,300. This is because defective work on the footings can easily impact all units.

Work on the roof of a multiple dwelling or duplex

Where the work is for the roof of a multiple dwelling or duplex, notional pricing applies on a per unit basis for a higher threshold (must exceed $5,000).  

Where notional pricing does not apply, the premium payable is based on the value of the works only. This means that small jobs pay a much lower premium of between $186.05 and $196.80.  

The threshold before notional pricing applies is still low because work on roofs can cause leaks which can also easily impact many units.

Note: a contract to carry out painting only of the roof or common property for a multiple dwelling or duplex is not subject to notional pricing, regardless of the value of the work.

Other work on or within a multiple dwelling or duplex

For all other work on common property on a multiple dwelling or duplex itself, for example external walls, internal walls, floors, ceilings, halls, carparks, stairwells and other common areas, the insurable value must exceed a threshold of $20,000 for the application of notional pricing.  

Where notional pricing does not apply, the premium payable is based on the value of the works only.  This means that small maintenance jobs pay a much lower premium of between $186.05 and $291.70.

Note: a contract to carry out painting only of the roof or common property for a multiple dwelling or duplex is not subject to notional pricing, regardless of the value of the work.

Swimming pools and related roofed buildings such as sheds

Notional pricing does not apply at all where a swimming pool is being constructed on the site of a multiple dwelling or duplex.  Similarly, where a freestanding related roofed building is being constructed, such as a shed, notional pricing does not apply.  A premium is determined based on the insurable value only. However, if such work is carried out in or on the multiple dwelling or duplex itself, then notional pricing will apply, since there is greater risk of damage to units in the multiple dwellings or duplex if the work is defective.

Exclusions

Work carried out for a body corporate on common property on a multiple dwelling that will not attract notional pricing includes:

  • painting
  • solid plastering
  • rendering
  • fire protection work
  • physical termite management work

Notional pricing does not apply to this work, regardless of the value of the work.

Limits on compensation provided where notional pricing does not apply

Where notional pricing does not apply, the maximum compensation is limited to $200,000.  Where notional pricing does apply, the maximum compensation is $200,000 per unit or $1M for the common property.

Note - higher compensation limits will apply where optional additional cover has been obtained.