The NSW Government has taken initial steps that may lead to the development of a decennial liability insurance (DLI) market in Australia.

Last week the Perrottet Government announced it is considering a proposal requiring high-rise developers or builders to take out DLI to cover potentially serious defects for up to 10 years in new buildings.

The Government says a regulatory impact statement is being prepared for consultation on the proposal made by a Ministerial Advisory Panel that was appointed last year to advise on options around introducing DLI to provide more protections for apartment owners.

The plan to follow-up with the report comes as the Government approved the application of a DLI offering from Resilience Insurance as a form of security under the Strata Building Bond and Inspections Scheme.

Since 2018 developers have been required to lodge a building bond as part of the scheme with NSW Fair Trading that is 2% of the relevant contract value to pay for rectification costs of any defective works that are uncovered for up to 24 months after construction has been completed.

“To support the broader rollout of this critical consumer protection for NSW apartment building owners, a regulatory impact statement is being prepared for consultation on the proposal to mandate decennial liability insurance for residential apartment building developments,” the NSW Government said in a statement.

DLI is still fairly new in Australia but in many countries in Europe, and France in particular where the concept originated from, it is mandatory to have a policy in place following a project’s completion.

Minister for Fair Trading Victor Dominello says the developments are a “big win” for apartment owners and body corporates.

“Decennial liability insurance provides those living in residential apartment buildings with comprehensive consumer protection for building defects caused by substandard design and building work,” he said.

“It also provides an insurance safety net for consumers that is currently lacking in residential apartment buildings.”

The Ministerial Advisory Panel’s report says existing safeguards “are not of themselves sufficient to protect consumers as many are expressly designed to provide business to business remedies rather than a consumer facing claims scheme”.

“DLI seeks to fill this gap,” the report said.

The report considered two DLI models for consideration: introducing mandatory DLI after a transition period which replaces a deposit payment under the Strata Building Bond and Inspections Scheme, or set it up as an alternative to the bond program.

The report says its preference was for mandatory DLI on all new Class 2 buildings and buildings with a Class 2 part to replace the strata building bond scheme.

It says the NSW Government’s work to strengthen the building sector should be commended as they are delivering clear benefits to customers and the industry.

“However, momentum must be maintained to ensure that insurers are attracted to the market,” the report said.

“Lessons learned from other jurisdictions indicate that requiring all developers to secure DLI creates a sufficient pool of premium payers to guard against claims outweighing premiums collected.

“It also creates sufficient interest from insurers to the market, rather than relying on a single provider or an uncompetitive duopoly.”

Click here to access the ministerial report.