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Building Crisis Worsens as Insurance Premiums Spike

Updated: Aug 19, 2019

Focus continues to remain on Australia’s building industry as the Building Ministers Forum (BMF) announces plans to implement a national approach for reform. On July 18th, the BMF announced that they would be facilitating the implementation of recommendations from the Shergold-Weird report, handed down in February 2018, aiming to ensure its consistent execution across the country.

Despite this, the BMF also emphasises that while they will assist through facilitation, regulation of these reforms will continue to rest with states and territories. The BMF’s efforts, however, may not be enough to unify the fragmented approach to building reform that states and territories are faced with.

Regardless, Treasurer Josh Frydenberg insists that the root of the problems plaguing the building industry comes from ‘a lack of compliance and enforcement at a state level’, and therefore, is a problem that must be solved at a state level.

The BMF’s announcement echoes the call for ‘a national commitment to action on regulatory enforcement and compliance’ in a letter published by Ai Group, Insurance Council, Property Council, Australian Construction Industry Forum and Master Builders. The letter highlights the risks posed to the building industry and the wider economy should the failing regulations persist, with particular emphasis on the adverse impacts already witnessed in insurance.

Concerns regarding cladding have seen insurance premiums skyrocket as insurers introduce ‘cladding-related exclusions’. This has placed a chokehold on building practitioners, restricting their ability to obtain the insurance they require to move forward with their projects. Master Builders chief executive Denita Wawn goes as far as to assert the possibility of this insurance crisis to ‘bring building activity to a halt’.

Reports have claimed that insurance premiums for building certifiers have spiked more than tenfold, with small-scale certifiers seeing their A$18,000 per annum insurance premiums climb to $221,000 per annum. Larger sized certifiers are looking at premiums of $1m per annum.

In Victoria

The Andrews government has pledged A$600m to cladding issues in the most high-risk buildings. The fund will be administered by the newly-established Cladding Safety Victoria. Early estimates indicate that the fund will fix cladding in around 500 buildings, just enough to tackle the 72 buildings classified as extreme risk and 409 found to be high risk by the Victorian Cladding Taskforce.

However, those estimates have also been disputed by research from the RMIT. The estimates proposed by their modelling indicates costs up to A$1.6bn, depending on the size of the buildings and the severity of the cladding issue. The Andrews government also concedes that while A$600m should be enough, they are not ruling the possibility of costs rising in excess of that figure. (ET)

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