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Insurance not ‘quasi-regulator’ of building standards: NIBA

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Sub-par building quality is the culprit behind the construction industry’s professional indemnity (PI) crisis, and governments must focus on the issue.

“It is unfortunate that the insurance process is being used as a quasi-regulator of building standards,” National Insurance Brokers Association CEO Dallas Booth says.

Writing in an association publication, he says such an approach “really does not work, as insurance works well only when the underlying risks are being well managed, and insurance is needed only in the case of rare and unexpected losses”.

“When losses are occurring on a regular basis insurance does not work well as the cost of claims very quickly becomes unbearable for those who have to pay the premiums.”

Building surveyors and other industry groups say the PI situation has worsened in the past few months despite moves by governments to step up reform actions.

The measures announced so far have failed to restore the confidence of insurers, who will no longer provide exclusion-free PI covers to building practitioners.

“The crisis seems to be continuing,” Mr Booth told insuranceNEWS.com.au.

“The matter is being overseen by the Building Ministers’ Forum but it’s not clear to me that significant steps are being taken to remove the core problem or fix the core problem – which is defects in building standards and bad buildings basically.

“I’m not an expert in what is best in the area, but certainly it’s not much use from my point of view looking for an insurance solution. You have to find a solution which directly addresses building standards and building quality.

“Once you’ve done that, the insurance process will then come back and play its role.”