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Inquiry calls out government 'failure' on PI stalemate

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The NSW Government’s failure to act on the presence of flammable cladding materials in residential dwellings has partly triggered the insurance stalemate facing practitioners such as certifiers and surveyors, an Upper House inquiry has found.

Strata owners have also been affected by the lack of leadership on the issue, the Public Accountability Committee says in its final report released last week, with many finding it increasingly hard to secure the building insurance they are required by law to hold.

In many cases, they have had no choice but to accept the “expensive” premiums being charged depending on the building materials that were used, according to the report.

The committee made 22 recommendations in its final report, including the establishment of a “substantial” cladding remediation funding package, similar to the $600 million program that was introduced last year by the Victorian Government.

“We are … of the firm belief that a credible, comprehensive and well-resourced state response to flammable cladding, similar to that in Victoria, is an essential first step in actually fixing the problem,” the report said.

“State government leadership is critical. The current situation of leaving the problem to individual local councils and individual homeowners with their only guide being the National Construction Code represents a failure of leadership.

“The State Government’s role here must include setting credible standards that help councils with enforcement and allow homeowners to remove and replace cladding with confidence that it was firstly necessary and second that they will not have to repeat the process when their new cladding is later deemed unsafe.

“Absent this state leadership, it is difficult to see how the flammable cladding crisis will be resolved or when or how insurers will be drawn back into the market to allow the process to work its way through.”

On the current PI stalemate, which has seen insurers stop offering exclusion-free covers, committee Chairman David Shoebridge says “it is imperative that the NSW Government act to address the insurance failure, not only in relation to cladding but insurance across the entire building and construction industry”.

The final report also reveals the NSW Government plans to engage with the insurance industry to develop a policy product to offer a 10-year warranty as a first resort to purchasers of a new building to cover areas like structure and waterproofing.

According to the report, the product will be tied to a risk ratings score so that insurers can identify buildings that are low and high risk and thereby have the confidence to offer a “decennial liability” insurance cover.

Insurance Council of Australia (ICA) spokesman Campbell Fuller says the industry looks forward to consulting with the NSW Government on appropriate risk-based products.

“The insurance industry is always focused on creating products that meet customer requirements that support measured beneficial outcomes,” he told today.

“The ICA reiterates its view that a redistribution of compliance risk should be shared through the construction chain.”

Click here for the report.