This article is from the Australian Property Journal archive
THE Australian construction industry has reached a crisis point and could grind to a halt within a week, leaving 10,000s of workers without a job if a solution to the Professional Indemnity crisis is not resolved within days.
The Australian Institute of Building Surveyors president Troy Olds and CEO Brett Mace have called on urgent state and federal action as the PI insurance reaches crisis point because building surveyors are unable to get insured.
They warned that if building surveyors cannot be registered, it is likely construction projects they are working on will come to a standstill.
“The AIBS understands that the last remaining provider of exclusion free PI insurance policies will no longer guarantee this coverage from 2 July 2019.
“As a result, building surveyors in NSW, QLD & Victoria who are unable to obtain an exclusion free PI policy will not meet requirements for registration in those states.
“We are aware there are hundreds of building surveyors across these jurisdictions whose registration is due for renewal in the following months and, if the PI insurance situation remains unchanged, these building surveyors will not be able to be registered,” they said.
“Over the past week we were notified that in one state, building surveyors have disengaged a number of their projects due to no insurance and, as a consequence, local government has had to take over. However, local government agencies are saying they cannot cope with the workload and they are not adequately resourced to take on this work, especially if the situation continues to escalate,”
“AIBS is dismayed and frustrated that the situation has reached this point. For several years, we have warned governments and regulators in all jurisdictions that without a joint industry and government intervention, this outcome was predictable,” they added.
“The issue intensified 12 months ago, and a crisis was only narrowly averted when new PI insurance providers were sourced to offer exclusion-free policies. But they too have now exited the market.
“Since last June, we have increased our efforts to alert authorities in all jurisdictions that this crisis was indeed now within plain sight,” they continued.
The Australian Property Institute’s CEO Amelia Hodge has called on stakeholders, governments and regulators to come together to resolve the crisis.
Confidential research by PwC shows the PI insurance sector has been unprofitable for eight years. In 2017, for every $1 in premium paid — insurers are paying out nearly $3.43.
“The Professional Indemnity Insurance (PII) market in Australia is challenging for a range of professions at present. Our API property professionals are also faced with this challenge.
“Our Australian property sector environment is being faced with a raft of challenging ever shifting themes that perhaps result in ‘an imperfect storm so to speak. We have concluded a Royal Commission into the Banking sector with (as yet) clearly defined regulatory responses, lending criteria has been modified for some time creating a changing property sector profile, the flammable cladding agenda has remained without a clear path forward and with an increasing number of live fire safety issues in several buildings, the Opal and Mascot Towers building defects crisis and the impact that has had on the residents of those impacted towers and all of their respective stakeholders.
“These are only a few issues that Australian property professionals across many sectors, who all require the support of an effective, robust PII market in order to practice and to appropriately protect consumers, have to grapple with presently.
“This (the AIBS) issue is a complex challenging one and I feel for all its members, their clients and impacted consumers dealing with the stress of this uncertain environment.
“My view always is that the best outcomes are achieved when industry, government, regulators, landholders and their respective key stakeholders come together and work a path forward together. The API is always here to support any initiative that progresses these issues to achieve improved outcomes for all.” Hodge said.
The Masters Builders also joined the call for action. CEO Denita Wawn said federal, state and territory governments must act now, and failure to do so has the potential to bring building and construction activity to a halt.
“Up to 30% of insurance renewals for building certifiers and surveyors may not be renewed as early as July and construction activity will grind to a halt if a solution is not found urgently.
“The problem is already causing delays to building projects across the country and will only get worse as more insurers withdraw from the market,” she said.
The AIBS’ warnings come ahead of the Victorian Cladding Taskforce handing down the findings of its state-wide audit.
Victorian Premier Daniel Andrews yesterday revealed the public purse will be used to tackle the issue of flammable cladding used for the construction of private buildings.
The premier, speaking on ABC Radio, also suggested that legislative changes would enable phoenix companies to be held accountable for non-compliant practices.
His comments came as screenshots of a website for a new government body have been doing the rounds, touting Cladding Safety Victoria as a “one-stop-shop for advice and assistance to the community in relation to the removal of combustible cladding”.
The Cladding Safety Victoria website was live for a few days but has since been taken down.
Residents of buildings affected by non-compliant material face difficulties.
“At the moment you have got a whole lot of assets that are basically stranded. It is very difficult to sell one of these properties,” Andrews told Rafael Epstein.
“There will have to be taxpayers’ money – government allocations.
“There can potentially be some money – some – recovered from those who have done this, have basically committed these errors and have used this dodgy product,” he said.
Victorian Planning Minister Richard Wynne recently told a state parliamentary committee there are more than 900 buildings across the state that were built with flammable cladding, with more than 70 deemed as “extreme risk” and nearly 370 as “high risk”.
“We’ve had a situation where a whole range of phoenix companies – they exist for the purposes of building that particular building, and then they’re gone at law afterwards.
“We don’t rule out making some legislative changes so that we can go out after some of these phoenix companies.”
Meanwhile the AIBS said accepting policies with exclusions to enable registration of practitioners is not a long-term workable solution because it leaves practitioners and consumers without appropriate protection.
“In recent weeks, we have become aware jurisdictions are considering allowing exclusions in PI policies to be accepted for the purpose of registration. This has already happened in SA. AIBS believes that PI policies with NCBP and external cladding exclusions should not be accepted by governments. This further exposes the building surveyor professionally and personally and greatly diminishes consumer protection.
“If there are no insurance policies without cladding exclusions, who is going to undertake the rectification of buildings identified by the respective cladding taskforces across the country or any other building with external cladding?
“It is this likely cost for owners seeking compensation for rectification that is being passed onto building surveyors through PI insurance with reductions in cover, increases in premiums, increases in excesses and lack of availability of compliant insurance that is currently threatening the viability of building surveying and the entire building regulatory system,”
The AIBS said the external combustible cladding crisis is a shared responsibility between industry and governments because it is a symptom of regulatory failure.
“While industry has acknowledged responsibility for our role in how combustible cladding came to be used on so many buildings throughout Australia, it was also the lack of government oversight over their own building regulatory systems, which included the private certification system, that contributed to the combustible cladding scenario we now have.
“Governments will have no choice but to intervene given there will be hundreds, if not thousands of legacy projects requiring remediation and ongoing management and consumer protection,” they said.
The building and construction industry is facing a number of issues in relation to non-compliant cladding and more recently, building defects following the Opal and Mascot towers incidents.
A joint Deakin and Griffith universities pilot study released last week identified 85% of buildings had at least one defect.
Meanwhile Mascot Towers residents have been told they will need $1.1 million to make remedial emergency repairs and a further $5.5 million to rectify the defects. One resident told the ABC that they have been unable to refinance their mortgage to pay for the repairs because the bank is aware of the defects issue.
The NSW government has vowed to conduct the “biggest shake-up of the construction industry”, although it has yet to the adopt the recommendations made in the Opal Towers report, which was released in February this year and more than a year following the findings from the Shergold Weir report into building regulations, commissioned by the Building Ministers’ Forum.
“Master Builders around the country are also calling for governments to speed up implementation of recommendations in the Shergold-Weir Building Confidence report to improve access to and the reliability of regulatory requirements for the building and construction sector,” Wawn said.
