The NSW Government announced today it is considering a proposal requiring high-rise developers or builders to take out decennial liability insurance (DLI) to cover potentially serious defects for up to 10 years.
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 the Government on options around introducing DLI to provide more protections for apartment owners.
The report looking into the viability of DLI proposed two 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.
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.
The Government’s plans to progress the report comes as it approved the application of a DLI offering from Resilience Insurance as a form of security under the Strata Building Bond and Inspections Scheme.
“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.
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.
It says 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.”
Resilience Insurance CEO Corey Nugent, who was a member on the advisory panel representing Insurance Council of Australia (ICA), says DLI is a “game changer” for the consumers and the building industry.
“This product differs from normal insurance in that insurers on a decennial liability insurance product are involved in inspecting the quality of work during construction,” he told insuranceNEWS.com.au.
“It’s checks and balances during construction, not after construction.”
Mr Nugent left the ICA after the report was provided to the Government in August.
Click here to access the ministerial report.