Cladding Crisis threatens huge disruption and potential Industry shut down as building surveyors & Certifiers become largely un-insurable right around the Country.
Given the forces of change triggered by the combustible cladding crisis within the construction and property development industry, the fall out now appears to be at a dangerous tipping point as building certifiers, surveyors and fire engineers are at risk of becoming uninsurable.
Earlier this year, the Australian Institute of Building Surveyors president Troy Olds and CEO Brett Mace called on urgent state and federal actions to placate the PI insurance debacle. It’s on good record that the last remaining provider of exclusion free PI insurance policies ceased this coverage from 2 July 2019. Confidential research by PwC would reveal that the PI insurance sector has been unprofitable for about eight years now. In 2017, for every $1 in premium paid – insurers are paying out nearly $3.43. It’s a dire state both for the Building Industry and the PI Insurers. In fact, while the sector wrote $40 million in premiums in one year, one insurer alone faced cladding-related claims worth $50 million, PwC’s report shows.
In recent times, discussions have flourished between the State and Federal Governments to come to a resolution about combustible cladding and related law suits that are yet to be concluded. These are still on-going but insurers have had to consider their own existence given the potentially massive cost of removing combustible cladding, as well as the lawsuits that have arisen out of horrific disasters like the Grenfell Tower tragedy in London in 2017.
External Cladding exclusion endorsements have now become a standard subjectivity of most PI Insurance for this sector and whilst this has become reluctantly acceptable by most state Building Boards, not all States find all PI policy Cladding exclusions compliant and acceptable still. Acceptance has largely been on a case by case basis.
Already, there are reports that some private building surveyors and certifiers have closed shop because they could not secure a compliant PI Insurance. This trend will no doubt significantly impact on the construction industry negatively.
Ultimately Governments will have no choice but to intervene given there will be hundreds, if not thousands of legacy projects requiring remediation and ongoing management and consumer protection.
How Megalines Insurance can help in the interim?
At Megalines, The Construction Industry is one of our Core specialties with extensive Industry experience and consultation spanning many years.
As insurance Strategists, we are currently working closely with the limited supply end of the equation and key players for a sustainable and legislatively compliant solution so that potentially affected businesses are kept alive for the long haul.
If you are a Building surveyors or Certifier, please consider the following 3 basis information when considering your circumstances in relation to PI policies:
- PI Insurances are generally arranged on a “claims made” basis which means it is critical for you to notify circumstances that may give rise to a claim prior to the expiry of your current policy
- Although cladding exclusions are now allowed by regulators and state building boards, the scope of exclusions still varies significantly: some are limited to external combustible cladding on high rise buildings whereas others relate to non-compliant building products generally. You should consider your exposure against current statutory requirements. Seek to obtain a policy with the least onerous exclusion in context of the nature of your business;
- You should ensure your businesses and personal assets, including staff entitlements are suitably protected.
For advice surrounding this issue, please contact Bunmi Ajayi or Karlo Abrenio at Megalines Insurance. More updates and information will be published on our website www.megalines.com.au and our various social media channels as available.
The information provided in this release is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Megalines directly at www.megalines.com.au
Bunmi Ajayi is the CEO of Megalines Insurance & Risk Advisers and the 2015 Australian Insurance Broker of the Year.