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Industry wants PI insurance requirements 'applied prospectively'

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The Insurance Council of Australia (ICA) has voiced concerns over the NSW Government’s draft regulations for the Design and Building Practitioners Act 2020 that was passed in parliament last June.

ICA says in a submission “elements of the Act in combination with the draft regulations… are likely to exacerbate rather than address the lack of available insurance”.

The “duty of care” provision contained in the Act and regulations requiring practitioners such as designers to hold adequate professional indemnity (PI) insurance are some of the areas of concern to insurers.

ICA says the “duty of care” applies retrospectively, meaning certain designers, manufacturers, suppliers and supervisors now owe a statutory duty of care to current and future owners to avoid economic loss caused by defects in respect of certain buildings.

“Further, this duty applies retrospectively such that owners may enforce this new statutory duty of care for economic loss in respect of existing buildings where the loss first became apparent within the last 10 years, or for a loss that first became apparent on or after June 11 2020,” ICA says in the submission.

“As a result, insurers need to take into account any work building professionals have completed in the last 10 years in order to understand the scope of their liability.

“This has significant implications for the PI insurance market which has already tightened because of the existing problems with defective construction.”

ICA says some insurers may choose not to write NSW-based risks or may adjust their appetite for such risks.

“The [ICA] strongly urges that insurance requirements should only be applied prospectively,” ICA said. “In an already constricted market, any retroactive application of a duty of care to professionals which, in effect, requires insurance with retroactive coverage will risk professionals being unable to be registered.”

ICA says its members’ preferred position is for the NSW Government to re-consider or amend the “duty of care” provision within the Act.

“However, if the provision remains… we suggest that design practitioners, principal design practitioners and professional engineers should also be exempt for at least three years from the commencement of the regulations,” ICA said.

ICA says given the very long-tail nature of the claims, it would take at least three years to start to see the effect of better compliance and enforcement flow through to claims figures.

It is anticipated that insurers' appetite to provide cover to these professionals, currently seen as high-risk, would return once improved claims figures become evident.

The regulations are set to commence on July 1.

Click here for the regulatory impact statement and here for the ICA submission.