Why does the bank / lender need this?

In the sectional title environment, the body corporate is the insured. The body corporate usually does not own property, yet by statute, the body corporate must insure the buildings and all improvements to the common property. The owner has an interest in the buildings, as much as the bank does if so bonded, however, the body corporate is in control and thus it’s insurance needs to satisfy the banker/lender that in the in case of loss, the lender’s debt will be settled.