This article originally appeared on Australian Financial Review
Insurers are coming back into high-rise apartment construction, and the first developer is likely to take out a defects liability insurance policy in coming weeks, as a result of NSW building regulation reforms that have tightened up standards and made risks more transparent.
The new product, which will cover defects such as waterproofing and structural faults for the first 10 years after completion, is an alternative to the “strata bond” – worth 2 per cent of a building’s construction cost – developers currently lodge with NSW Fair Trading for two years.
Reforms NSW legislated two years ago giving the building regulator powers including withholding an occupation certificate to prevent settlement of a project and the separate development of a ratings tool for developers and builders have given insurers confidence they can accurately assess, and price, risk in the building chain in a way they could not previously do.
It’s a big turnaround from the crisis four years ago of the Opal Tower, where cracking in the structure triggered the evacuation of residents on Christmas Eve and prompted criticisms from advocacy groups that apartment buyers in NSW had less consumer protection than people purchasing a fridge.
“They now have insurance protection for 10 years after they take possession that the building will be structurally sound,” said Corey Nugent, the chief executive of Resilience Insurance, the first company to offer the latent defect insurance, or decennial liability insurance.
“We will be checking throughout constriction – it needs to be purchased before construction starts – at various critical periods that work being done is being done to design and code and standards.”
Mr Nugent, previously the Insurance Council of Australia’s senior operations manager, said his company, known in the trade as a managing general agent, had been quoting on policies for about six weeks and was about to issue its first policy to a developer.
The policies are underwritten by SCOR and Pacific International.
The start of a defects insurance regime does not, however, resolve concerns that keep insurers out of the professional liability market – or heavily limit their exposure to it – for building industry practitioners.
“The two are not directly related, but it is expected that improvement in performance of building outputs through the design and build production will positively impact the performance of other insurance products like PI,” Mr Nugent said.
“Positive claims experience in those markets would naturally lead to greater interest of insurers participating and on premium rates.”
The insurance reforms, due to be announced in coming weeks, come from recommendations by an advisory panel chaired by Hollard Insurance Australia chairman Gary Dransfield, a NSW Fair Trading spokesman said.
“It is hoped this will reward trustworthy developers and those who purchase apartments from them with a comprehensive consumer protection to complement the efforts of the NSW building regulator to crack down on non-compliant and unsafe building work,” the spokesman said.
The industry welcomed the changes.
“This is a last-place-to-first-place-story for apartments in NSW,” said the Urban Development Institute of Australia’s NSW chief executive Steve Mann. “We’re charging towards first place.”
The NSW government has also appointed Matthew Whitton to the new role of assistant building commissioner as the state building industry regulator adjusts to a role bedding down reforms in the $52 billion-a-year industry.
Mr Whitton, who heads building and construction compliance enforcement in NSW Fair Trading will remain within the government department, which works closely with regulator SafeWork NSW.
It is unclear what will happen to the office of the building commissioner when Commissioner David Chandler retires next year.
“David Chandler’s appointment as building commissioner was recently extended August 2023,” the government spokesman said.
“Decisions on the future of this role will be made by the government in due course.”