New exclusion free PI insurance for building certifiers

Neo200 cladding fire Photo MFB
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FOLLOWING a year of uncertainty, Australian building certifiers have had a breakthrough after Lloyd’s of London introduced new professional indemnity insurance without a ‘cladding exclusion’ cover.

Since July last, insurers remaining in the market have inserted a broad exclusion for non-compliant cladding systems into their PI insurance policies.

It came after the last remaining exclusion-free policy insurer withdrew from the market. Confidential research by PwC shows the PII sector has been unprofitable for eight years. In 2017, for every $1 in premium paid — insurers are paying out nearly $3.43.

The crisis prompted most state governments are now allowing building practitioners, such as surveyors, to be registered whilst holding PII with exclusions, which the AIBS said were useless because it does not adequately protect practitioners and consumers.

This has meant Australian building certifiers have been unable to obtain PII for claims relating to aluminium composite panel (ACP), sometimes referred to as ‘combustible cladding’. Along with availability, the cost of PII has also deteriorated with many building certifiers now struggling to afford ballooning premiums and increases in excess.

The Royal Institution of Chartered Surveyors (RICS) has been working with its local broker Coverforce over the past 18 months, to develop an industry response to the problem.

Despite the COVID-19 pandemic taking centre stage, RICS Australasia, SE Asia managing director Chris Nicholl said the issue of PI insurance cover remains as important today as it might have been 12 months ago.

“Each of the state governments have been struggling to resolve this issue to keep industry moving and protect consumers. As a consequence, they have all acted independently resulting in different approaches and making life more complicated for all,”

NSW has implemented a raft of regulatory reforms including development of a new Certifiers Practice Standard and probing legislation aimed at residential apartment buildings that grants significant powers to the Building Commissioner to prohibit the issuing of occupancy certificates. Queensland commissioned a 2019 report by PWC into PI insurance whist Victoria is currently undertaking a systemic review into building system insurance framework.

While at the national level, an implementation team has been established within the Australian Building Codes Board to assist in achieving national consistency across the Federation in the implementation of the recommendations of the Building Confidence Report (2018).

Without any end in sight to the PI insurance problem, building ministers from around Australia met in December last year to discuss a coordinated response to the cost and availability of PI insurance. Following that meeting, ministers declared in a communique that “the insurance sector and professionals in the construction industry all have a critical role to play in developing solutions.” They also called upon “industry associations to develop professional standards schemes.”

“This is a powerful demonstration of the role of professional associations in the co-regulatory framework.

“Governments cannot do all the lifting,” Nicholl said.

The new cover offers limits of $1 million and $2 million. As part of the compliance regime set by the underwriter, they are required to register their firms to be regulated by RICS and ensure a minimum 50% of their practising staff are either Chartered Surveyors or Associate members of RICS.

Chartered Surveyors Ltd submitted an application to Professional Standards Councils in May this year. If approved, this scheme will cap the civil liabilities of all participating members being Chartered Surveyors, Associates and firms regulated by RICS.

Coverforce executive general manager insurance Nathan Brown said: “The experience of RICS as a global assurer of surveying professionals and firms has been the key to success, underpinning the confidence of the underwriter.”

RICS Australasia head of policy and corporate strategy Benjamin McDonald said this has always been about restoring confidence through addressing consumer risk.

“In basic terms that means increasing the professionalism of the workforce. And to do that, we perform key functions like assessment of competence, skills training, issuing technical guidance and regulating individuals and firms either pro-actively or in response to complaints.

“Insurers need confidence like anyone else. It’s a significant win for building certifiers, consumers, and the wider industry,” McDonald said.

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