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GENERAL PROPERTY

Surveyors, engineers and architects struggling to get PII

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THE Insurance Council of Australia has joined property industry groups, calling for uniform national action to fix the professional indemnity insurance (PII) crisis as well restore public confidence in apartments following the Opal, Mascot and Zetland building defects, and Lacrosse/Neo 200 cladding fire incidents.

The Australian Construction Industry Forum, Ai Group, Insurance Council of Australia, Master Builders Australia and Property Council of Australia have jointly signed an open letter to the state, territory and federal governments.

In the letter, they said Australia’s fragmented approach to regulatory enforcement and compliance with building regulations requires a renewed commitment to national action to maintain public confidence.

They warned that building surveyors, engineers and architects are now struggling to obtain the insurance, which in turn could seriously affect future building or construction activity.

The signatories said the crisis is due to insurers introducing strict cladding-related exclusions in mandatory PII products following London’s Grenfell and Melbourne’s Lacrosse and Neo 200 cladding fire incidents.

A recent study by RMIT University estimates the bill to replace combustible cladding in Victoria alone could cost as much as $1.6 billion based on the 629 buildings affected, although it warns the true cost is yet to be determined because the risk level is unknown.

More recently the discovery of major defects in buildings such as Opal, Mascot and Zetland have significantly reduced the ability of those building owners to find an insurer willing to accept the risk.

The signatories said all levels of governments have not taken a consistent and comprehensive approach to undertaking and completing audits of existing high-rise buildings with combustible cladding, nor developed a remediation strategy.

They are calling to the governments to develop and implement a consistent and best practice Australia-wide response for risk assessment and a rectification strategy for existing buildings with combustible cladding with an agreed timetable that reflects the urgency of the issue.

“This will reduce confusion, clarify the scale of the challenge and support a viable professional indemnity insurance market that provides the coverage needed by industry participants and building owners,”

They also called for a joint government-industry taskforce to oversee urgent and consistent implementation of all Shergold-Weir report recommendations across all jurisdictions.

“Governments are taking an inconsistent and fragmented approach to implementing reforms described in the Shergold-Weir report, which was released 18 months ago,” They said.

Strata Community Association which represents $1.2 trillion strata sector said the millions of Australians living in or owning apartments will be the losers unless there is reform.

According to the 2016 Australian Bureau of Statistics Census, the number of occupied apartments in Australia has increased by 78% to 1,214,372. More Australians than ever are taking up apartment living with 10% (2,348,434) of all people. There is now around one occupied apartment for every five occupied separate houses in Australia – compared with one to every seven, back in 1991.

Strata Community Association CEO Alisha Fisher said problems in strata buildings like Mascot Towers in Sydney are at the cause of the current concerns but the issues run much deeper and include the cladding remediation costs and rising insurance premiums.

“The issue of flammable cladding needs to be addressed as part of any industry reform.” Fisher said.

The Australian Property Institute’s CEO Amelia Hodge previously called on stakeholders, governments and regulators to come together to resolve the crisis.

“The Professional Indemnity Insurance (PII) market in Australia is challenging for a range of professions at present. Our API property professionals are also faced with this challenge.

“My view always is that the best outcomes are achieved when industry, government, regulators, landholders and their respective key stakeholders come together and work a path forward together. The API is always here to support any initiative that progresses these issues to achieve improved outcomes for all.” Hodge said.

RICS recently said any solution to the PII problem must therefore address the factors contributing to contraction including a lack of (government) policy certainty, uniformity across the Federation, data transparency and industry support.

“Looking at the last few decades, it’s logical to conclude that compliance and enforcement issues in building and construction have occurred under the complexity of the complex co-regulatory environment overseen by the states and territories,” RICS Australasia, South East Asia and Japan managing director Chris Nicholl said. “And so, to the extent that the PII problem has been a result of ineffective oversight, the response cannot simply be more of the same.”

The UK government has announced a $400 million assistance package and recently Victorian Premier Daniel Andrews indicated taxpayers could step in with the government becoming insurer of last resort.

British engineer and Chair of the UK government’s Independent Review of Building Regulations and Fire Safety Dame Judith Hackitt recently said in editorial on Australian Property Journal that even if the government pays to rectify the problems, it does not that mean those who cut the corners in the first place get let off the hook rather than being held to account.

“We need to drive a massive culture change in the whole construction and built environment sectors that holds people accountable for designing, building, maintaining and managing buildings which are safe for people to live in throughout the full life cycle.

“A new regulatory system needs to drive the right behaviours, make responsibilities crystal clear, create significant penalties for those who flout the law and incentives for those who do the right thing.

“The market needs to find a way to recognise the importance of quality which means changing procurement practices away from simply awarding the contract to the guy who bids the lowest cost.” Dame Hackitt said.