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Following consecutive years of underperformance, poor underwriting returns, and reduced insurer capacity, Professional Indemnity (PI) premiums have risen in most industries. The Strata and Real Estate markets are no exception, with the former experiencing sizeable increases to PI premiums as a result of landmark building fires such as Melbourne’s Lacrosse Tower (2014) and London’s Grenfell Tower (2017). Alongside such events, growing concern around the risks of combustible cladding, in general, has placed properties around the world under heightened insurer scrutiny.
Appointed to act as an administrator on behalf of the Owners Corporation, Strata Managers are responsible for arranging maintenance works, securing adequate insurance, building projects, valuations, and bookkeeping. The sheer scope of a Strata Manager’s role presents many exposures for insurers to consider, with the non-disclosure of combustible cladding at the forefront of their concerns. An omission of this magnitude could lead to a sizeable claim brought against the Strata Manager's PI policy by the Owners Corporation, in the event that a claim is declined by its insurer. To help combat this exposure, and allow insurers to continue providing cover, a non-compliant external cladding exclusion is now applied as standard on most policies. This includes other professions and industries such as PI policies for engineers and architects. The general intent of the exclusion is to highlight there is no coverage for claims arising out of or connected with any building products used in the construction of the building, that were not compliant and did not conform to the applicable building standards. Special attention should be paid to the definition of such products so an accurate disclosure can be made by the Strata Manager when securing appropriate insurance.
You can learn more about identifying combustible cladding in our article: Combustible cladding - A timely reminder for owners, residents, and strata managers.
Traditional real estate professionals involved in sales, leasing, and valuations are likely to experience several risks in the short to medium term in response to changed working practices brought about by COVID-19. In a recent webinar, leading financial lines insurer Dual Australia, predicted a potential crash in property prices could lead to an increase in claims brought against real estate agents and valuers. Given the constraints on valuers throughout the COVID-19 period, they have been restricted to desktop valuations, which could compromise the accuracy of assessments and therefore heighten potential PI risks.
Whilst we’ve focused on Strata & Real Estate here, it is important for professionals in all industries to stay abreast of regulatory changes, and to understand their implications for business operations. At Honan, we take our professional duty as insurance brokers incredibly seriously. For all clients, we regularly perform robust, accurate risk assessments, and transfer risks as required. As we move into a more litigious society, the importance of an adequately insured Professional Indemnity policy cannot be overstated.
Our specialist team of Honan brokers is available to discuss your unique risk profile. To learn more about how we can help, feel free to reach out at any time.
Client Manager, Strata Insurance & Risk Solutions
VICTORIA
+61 439 391 289
Client Executive, Strata Insurance & Risk Solutions
VICTORIA
nathan.mauriello@honan.com.au
If you’re based outside Victoria, please contact your local broker via this link.
