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NSW inquiry lists measures needed to restore builders’ PI

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A NSW Upper House inquiry into the state’s troubled building industry has made 19 suggestions to address the raft of problems that have forced insurers to raise premiums and impose strict exemptions on professionals’ insurance cover.

A few of the proposals relate either directly to insurance arrangements or will have implications for indemnity coverage, according to the Public Accountability Committee’s initial report released yesterday.

Specifically, the timeframe to claim for minor and major defects under statutory warranties for residential buildings should be extended to at least seven years. Currently owners have a two-year period to claim for minor defects and six years for major claims.

The politicians also say the state-run Home Building Compensation Scheme should be amended to cover residential buildings that are three storeys or higher. At present the scheme does not apply to new buildings over three storeys that contain two or more dwellings.

The inquiry also recommends the NSW Government should review its definition of “defect” to provide more clarity for homeowners.

Committee Chairman David Shoebridge took aim at the Government’s handling of the construction crisis, which has left the financial viability of certifiers and other building practitioners in doubt.

“As a direct result of the lack of standards in the industry there is no functioning insurance market willing to take on the risk of residential building and construction,” Mr Shoebridge says in the foreword of the report.

“This comes down to a fundamental failure of building standards and the failure of successive governments to effectively regulate the industry.

“The magnitude of defects we are seeing today is just the tip of the iceberg. The Government needs to urgently address the standard of building quality to ensure the insurance market is confident in underwriting that risk.”

The committee has also asked the Government to hold off on plans requiring registered design and building practitioners to have professional indemnity (PI) until it has engaged with the Insurance Council of Australia (ICA). It wants the Government and ICA to work together to “develop appropriate insurance products”.

Submissions to the inquiry have voiced concerns that compliance would be difficult in the current situation, since insurers have stopped providing exclusion-free PI covers.

The Government has flagged the insurance requirement in its draft Design and Building Practitioners Bill that was put up for consultation last month.

“It is extremely concerning that there is no current insurance product that would provide the kind of professional indemnity insurance that is required under this bill,” the report says.

“The committee would have thought that there would have been some assurance that an insurance product would be available before legislating this requirement.”

ICA broadly supports the recommendations made in the report, spokesman Campbell Fuller told insuranceNEWS.com.au today.

The deadline for the committee’s final report has been pushed back by three months to May 14 next year.

Click here for the report.