A tenant in an Albany apartment caused a kitchen fire in 2022. The structural damage was significant — internal walls, ceiling, electrics. The body corporate's insurance covered the rebuild. What it didn't cover was the gap between the insured rebuild cost (set in 2019) and the actual cost of rebuilding in 2022 — a difference driven by three years of construction cost inflation and supply chain disruption. The shortfall was $110,000. The body corporate's options were limited: a special levy, a loan, or prolonged negotiation with the insurer. They ended up with all three.
Body corporate insurance isn't optional. The body corporate must hold a principal insurance policy covering all buildings and improvements within the development. This is a statutory obligation under the Unit Titles Act. What the Act doesn't specify is that the policy has to be adequate — and adequacy is something that can quietly erode over time if nobody is paying attention.
What does the principal policy cover? The buildings, common areas, and improvements — essentially everything that makes up the physical structure of the development, from the roof to the car park floor. It doesn't typically cover individual owners' contents, personal property, or improvements owners have made within their units beyond what was originally there. Owners who rent out their units also need to know that the body corporate policy covers the building, not the landlord's income or the tenant's belongings.
The sum insured — the maximum the insurer will pay out — needs to reflect the actual cost of rebuilding the entire development from scratch. Not the market value. Not what it sold for. The cost of rebuilding it, using current construction costs, in the current market. Construction costs in New Zealand have increased significantly over recent years. If the building's sum insured was set more than two or three years ago, there is a meaningful risk it is now understated.
Annual review isn't gold-plating — it is basic risk management. A specialist insurance broker who knows the unit title market can help the body corporate assess whether the current policy is adequate, whether the sum insured needs updating, and whether there are better options in the market. Wellington buildings have particular complexity here because earthquake risk affects both the availability and cost of cover. Auckland buildings deal with a different set of issues, particularly around weather-tightness and the legacy of leaky building-era construction.
For landlords renting out their units: there is a specific requirement under the Residential Tenancies Act that tenancy agreements include an insurance statement — a disclosure to the tenant about whether the property is insured and, if so, what the policy covers. Getting this wrong is a compliance breach. Getting it right requires knowing what the body corporate policy actually covers, which means knowing the policy details, not just that a policy exists.
A common misunderstanding: some owners assume the body corporate policy covers everything, so they don't hold their own insurance. That is a mistake. The body corporate policy covers the building structure and common areas. It doesn't cover the owner's personal belongings, the fit-out improvements they have made to their unit, or their liability as a landlord. Contents insurance and a landlord policy are separate, and both are worth having.
For committees: make insurance a standing AGM agenda item, not an afterthought. The body corporate should be reviewing the policy annually, considering whether the broker relationship is the right one, and confirming that the sum insured is being updated to reflect current rebuild costs. The Albany fire wasn't unusual — it is exactly the kind of event insurance exists for. The problem was that the policy had drifted out of alignment with reality.
Quarter is the new body corporate — transparent, owner-first, and built for the way people actually live together. See how it works at quarter.nz.