Coastal Regional NSW Block in an SMSF

A trustee of a self-managed super fund contacted us about a small unit block the fund held on the NSW mid-north coast. The property had been inside the SMSF for several years, originally placed by a generalist broker who had since stopped writing new business.

The trustee was trying to organise renewal and wanted an independent review of whether the existing cover was right. Our first look at the schedule turned up the problem fast: the building sum insured had been set years ago and hadn't kept pace with east-coast construction cost inflation. A quick replacement cost estimate suggested the block was roughly 30% underinsured.

Coastal construction costs in regional NSW have moved significantly over the past three to four years. Trades availability, cyclone-compliant upgrades in some postcodes, and material costs have pushed replacement values well above what the original schedule had captured.

The first conversation wasn't about quoting. It was about getting the sum insured right. Before we approached any markets we commissioned a professional replacement cost estimate and walked the trustee through what could happen in a total loss scenario if the sum insured was materially understated - the insurer pays out what's on the schedule, which doesn't rebuild the building at current costs.

Once the sum insured was updated to reflect real replacement cost, we rebuilt the submission with current information:

• Updated building valuation and replacement cost methodology
• Construction detail - brick and tile, recent roof maintenance records
• Tenancy profile - mid-length tenancies, professional property manager
• Claims history - five years clean on the block
• SMSF structure named correctly on schedule (a common paperwork issue)

We approached the markets we trust for regional coastal NSW blocks. The sum insured change meant some markets that had quoted historically would no longer have appetite at the new figure.

The underinsurance conversation was the hardest part. The trustee's initial reaction was to keep the old figure because "the policy had worked fine for years". We explained what that meant in practice: if the building burnt down tomorrow, the insurer pays the sum insured. A figure set years ago won't rebuild a block at today's construction costs - the owner carries the shortfall out of pocket.

The second challenge was price movement. A higher sum insured increases the base premium. We were honest with the trustee that moving to accurate cover would mean a premium increase - but the increase was trivial compared to carrying hundreds of thousands of dollars of uninsured rebuild exposure.

SMSF paperwork also needed attention. The policy schedule had the trustee name formatted inconsistently across documents. Getting the named insured right matters when a claim is pursued years later.

We placed the block with CGU on the corrected sum insured. The premium increase was in the high single-digit percent range over what the old cover would have renewed at - a meaningful jump, but a fraction of the shortfall the trustee would have carried if a total loss had hit the old schedule.

Underinsurance is probably the single biggest preventable problem in block-of-units cover. It's almost always unintentional - owners set a sum insured once, then leave it alone. Meanwhile construction costs move, the building ages, and the gap between insured value and real replacement cost quietly widens.

If your block is in an SMSF or trust structure, speak to us. We review the schedule, check the sum insured against current replacement cost, and tell you honestly if your cover is still doing its job.