At a time when the construction industry is going through a tough phase, insurers are now tightening the norms, making it more challenging for building businesses to obtain insurance.

Following recent commercial driven decisions by reinsurers triggered by building disasters such as London’s Grenfell Tower fire and the LU Simon Lacrosse tower fire in Docklands, Melbourne, obtaining insurance cover will become a very costly undertaking and a significant challenge for businesses within the construction and associated industries.

Adam Richardson, Honan Insurance Group (Honan) construction industry lead, says that the Professional Indemnity and also Design & Construct Insurance represented a relatively soft market with insurance companies competing for top-line growth or market share.

However, their approach changed around the end of the financial year in 2018 with insurers only looking to support profitable business.

Insurers in the local market have become unsupportive of ‘distressed accounts’ where contractors have had multiple professional indemnity losses or notifications.

“What’s more, if insurers are not achieving their premium/revenue objectives, they are prepared to walk away! Bill shock will be a significant issue for many organisations when they receive their Professional Indemnity renewals this year with premiums and loadings in some sectors increasing threefold,” Richardson says.

Cladding was the problem in both the Grenfell Tower fire in London and the Lacrosse apartment tower fire in Melbourne. Planning and fire experts have estimated that there may be more than 5,000 buildings in Victoria alone that contain non-compliant cladding. Consequently, non-compliant cladding is already on the radar of insurers as well as planning authorities and government throughout Australia.

Earlier this year, the Victorian Civil and Administrative Tribunal (VCAT) had ordered LU Simon to pay more than $5.7 million to the Lacrosse apartment owners. VCAT had also ruled that the money would be paid to LU Simon by the architect, fire engineer and building surveyor who worked on the project as they had breached their contractual obligations.

Another fire caused by flammable cladding at the Neo200 apartment complex in Melbourne earlier this year has raised fresh concerns over the use of combustible materials as cladding on high rise buildings.

These disasters have not only shifted the spotlight to architects, fire engineers and building surveyors but also made it difficult for them to obtain Professional Indemnity cover without strict endorsements and/or exclusions for uncompliant cladding.

Businesses that are unable to obtain cover for cladding exposure will not be compliant with their license.

Getting an insurance cover or renewing it is no longer an easy process. Therefore, Honan is working proactively with their building and construction sector clients to assist them in obtaining cover.

Richardson concluded, “We have been emphasising the importance of early engagement with our clients as it’s an imperative in the current environment. Underwriters will not positively receive risks, which are presented late or close to expiry date, and it is vital that proposal forms are submitted well in advance to ensure sufficient time to negotiate the most favourable renewal outcomes.”

Image: Strata Data