Combustible Cladding Crisis


What will be the full impact for building certifiers and fire engineers as Australian insurance providers depart the professional indemnity market?

Recently Australian underwriters and insurers have decided to withdraw from providing professional indemnity (PI) cover for building certifiers and fire engineers following the impact of the combustible cladding crisis.

The initial trigger for the realisation that non-conforming cladding has been used extensively in buildings across Australia was the fire at the Lacrosse Apartmentbuilding located in Melbourne in November 2014. Fortunately, a complete disaster was avoided at Lacrosse with no loss of life. 

After a lengthy investigation and court case, the tragedy resulted in damages being apportioned to the associated fire engineer, certifier, architects and builder in February 2019. Accordingly, insurance premiums for these professionals are rising to new, and cost-prohibitive, levels.

Like any business, insurance companies operate within the parameters of risk management and profit. Is it any wonder they are running away from providing cover, with the potential litigation that may follow?

Our building industry will now potentially see a combination of certifiers and fire engineers either leaving the industry or increasing their fees to offset the significant increase in their premiums, which now must be obtained offshore. Both certifiers and fire engineers must have this PI cover to be registered to practice in Australia.

Whilst there are government task forces established in each state and territory to manage the audit of buildings, no government has yet created a scheme that provides building owners any financial assistance, nor provided a solution to the now-evident professional indemnity conundrum.

Recently l spoke with a Level 1 Building Certifier in Brisbane who advised that their PI insurance has risen by approximately 900% (that includes cladding cover), with excesses as much as the premium itself if there is a claim. However, if cladding cover is excluded, the policy premium is still a 400% increase with the excess almost as much as the premium again. This has now become a secondary problem as a result of non-compliant cladding installations in our buildings.

To give this some context, most buildings that contain this non-compliant cladding are multi-residential, aged care, hotels, commercial and hospitals, to name a few. These buildings require a building approval that can only be provided by Level 1 accredited building certifiers.

Where to now?

The building industry, particularly in the commercial sector, will more than likely see rapid increases in approval costs and professional fees, directly because of the insurance premium rise and limited insurance providers available within Australia.

I see no alternative for federal and state governments to intervene and assist the building owners for rectification costs, and the building professionals who cannot receive a ‘fair’ price for their PI cover.

The construction and insurance industry potentially face project delays, job losses, increased costs and a general ‘slow-down’ of activity due to the inaction of previous governance and controls by allowing non-conforming products to enter the country, and ultimately be installed in the buildings we work and live in.

The impact will be further compounded in the insurance sector when existing buildings with non-conforming cladding are required to obtain insurance property cover. Business interruption and building occupier relocation considerations in the event of a claim on a property potentially spread further than the problematic situation of obtaining comprehensive and competitive insurance cover initially.

By Scott Abbott

Courtesy of Sedgwick Connection

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