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Cladding crisis could force up premiums, ICA warns

The presence of flammable building cladding could result in large premium increases, or even a refusal to offer cover, the Insurance Council of Australia (ICA) has warned.

The Senate inquiry into non-conforming building products is accepting more submissions, having widened its scope following the deadly fire at London’s Grenfell Tower, which is thought to have spread via the building’s combustible façade panels. 

ICA’s submission says the current regulatory regime “needs to be reviewed and adjusted” to ensure only properly tested and compliant materials are used in all buildings.

It recommends a national approach to enforcement of existing regulations, including an audit of buildings to quantify the current level of exposure.

“The installation of non-conforming building products, for example combustible facade materials, that contravene the… [Building Code of Australia] critically undermines the ability for an insurer to rely upon the safety and performance of the building,” it says.

Insurers may accept that the risk can be mitigated or contained, but there is no guarantee of this and they may decide not to insure a building, or to opt out at renewal.

Also possible are “significant increases” in premium due to the higher level of risk, increases in excesses or deductibles, and changes to terms and conditions.

Some insurers may insist on replacement of combustible facades before contemplating coverage.

ICA emphasises it is vital for policyholders to inform their insurers if they become aware of a non-conforming building product.

Its submission goes on to say that current building industry regimes involving private certification are “open to unacceptable failures”.

“ICA believes there should be an independent specification and plan review process, including an inspection regime scheduled to coincide with critical stages of construction development,” it says.

“These regimes should conclude in a final certification process that precludes any potential for non-compliance and product substitution.

“While likely to be an unpopular suggestion, giving rise to complaints about increased costs and impacts on building timeframes, a robust and independent compliance regime will ultimately save lives and costly rectifications where non-compliance is only detected in a building some time after occupation has commenced.”

Public hearings are taking place this week, and the Senate inquiry’s final report is due on October 31.

Meanwhile, the Building Ministers’ Forum, comprising Commonwealth, state and territory ministers responsible for building regulation, has commissioned an expert to examine the “broader compliance and enforcement problems within the building and construction systems”.

This will include education, licensing, design, quality assurance, competencies of practitioners and importation.

The forum has also launched a one-stop-shop website providing information on non-conforming building products, enabling the public to submit a complaint or enquiry about a product or material. The website can be found here.

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