Home / Analysis / State of paralysis: the heavy price of inaction as PI nightmare drags on
18 November 2019
Like many others before it, the latest report into what ails the building industry delivered little in the way of new insights into a shambolic state of affairs.
Most of what was contained in the NSW upper house inquiry’s take of the problems and the solutions it offered more or less follow a familiar and well-worn path.
But it is still worth highlighting what the Public Accountability Committee said in the 196-page report even if it is confined to the NSW construction sector. Many of the issues it explored apply to what the rest of the states and territories are facing.
Furthermore, things have taken a turn for the worse since the committee launched the inquiry in July, a month after residents in Sydney’s Mascot Towers were forced to pack up and leave in a matter of hours over fears the building was structurally unsound.
The professional indemnity (PI) market for the construction sector, as insuranceNEWS.com.au has reported extensively, is in tatters. As is the case in the UK, not only have premiums shot up by as much as 500% or more in many instances, but insurers are taking a tougher line. Renewals now come with huge excesses and broad exclusions, including for cladding.
As committee Chairman David Shoebridge so aptly puts it in the report: “As a direct result of the lack of standards in the industry, there is no functioning insurance market willing to take on the risk of residential building and construction.
“The magnitude of defects we are seeing today is just the tip of the iceberg. The Government needs to urgently address the standard of building quality to ensure the insurance market is confident in underwriting that risk.
“The issues occurring within the industry are not only significant and complex but have dire consequences if left unresolved.”
They haven’t been resolved and the consequences have been dire. The building crisis has panned out exactly the way the insurance industry and other stakeholders warned it would unless appropriate measures were taken.
The problems were allowed to fester for years as governments at state and federal levels either responded with half-baked actions or hoped the problems would go away if ignored long enough.
So severe is the crisis that the insurance industry has stopped offering PI covers without exemptions to clients who have anything to do with the Australian construction business.
The last provider of exclusion-free PI insurance, Landmark Underwriting, walked away in July, joining an exodus that began in earnest after the 2017 Grenfell Tower fire disaster in London sparked concerns over the widespread presence of flammable cladding in high-rise blocks.
And the fallout has been swift and devastating. Surveyors, certifiers and many other building practitioners have warned they may not be able to operate for much longer under such draining conditions.
Like their UK peers post-Grenfell, they are paying the price for years of government failure to pay heed to warnings that all is not well inside the building sector.
In Australia the tell-tale signs spilled out in the open as early as 2014, when a fire damaged the Lacrosse apartment building in Melbourne. The use of non-compliant cladding made of the same combustible material found in Grenfell, was blamed for the rapid spread of the fire.
Still, governments stayed mostly indifferent, ignoring the growing chorus of calls for stronger building codes and enforcement action to stamp out the systemic issues plaguing the industry.
After Grenfell, insurers’ hopes for a stronger government response were dashed. As Insurance Council of Australia GM Risk Karl Sullivan told the committee at a hearing: “There has been no clear resolution at a national level or state level that would allow insurers to hold the confidence that it is being dealt with completely.”
Backed into a corner, with no more room to hide, politicians blamed everyone but themselves. The committee thinks otherwise, as have many of the submissions from stakeholders and residents caught up in the mess.
“It comes down to a failure of government to regulate,” the committee says in the report.
The Mascot Towers Owners Corporation in its submission is similarly blunt.
“The silence surrounding the industry could not last forever,” the corporation says. “Governments at all levels have reaped billions of dollars from the Sydney property market. At the end of the day, the buck stops with the Government.”
Mr Shoebridge says restoring the confidence of insurers is paramount. And there is no better way for governments to do that than by first shrugging off the paralysis that has been obvious for so long.