How insurers evaluate building defects and what impacts your insurance costs

In this article, we have collaborated with CHU to gather insights on how building defects can impact the insurance costs and what you should know to protect your building

With many building defects coming to the fore in the news, we understand you may be worried if you do not have the right kind of insurance to protect your property. Through this article, we hope to shed some light on what factors influence your building’s insurance cover, and how an insurer’s mind works.Here are 3 important insights on how building defects can impact your strata insurance costs and what you should know to protect your building: 

1. What should you know while looking to rent or buy a property?
2. What information is required by insurance providers to evaluate defects?
3. What factors could affect the insurance cover?

What should you know while looking to rent or buy a property?

1. How defects might influence the underwriting assessment of insurance for your building
2. What kind of risks associated with defects may compromise the safety of your building as they may also affect your personal finances and expose you to legal action
3. What kind of defect-related exclusions may be present in your insurance contracts and whether these are clear, hidden or ambiguous
4. What your builder’s approach may be to rectify any defects that may be found. A proactive approach for rectification will maximise insurance coverage and avoid the risk of a claim denial due to defects.

What information is required by insurance providers to evaluate defects?

To determine if you have adequate insurance coverage and what kind of coverage may be suitable for you, insurers will need all kinds of information that can help reveal the extent and severity of the defect. Hence, you must secure information and documentation such as:

1. Professional reports

Your insurer may request you to provide a builder’s scope of works to rectify the defects, engineers’ reports, and any compliance certifications you may have.

2. Building contracts

 If a building contract exists, it will provide details on the work required to rectify the defect and the value of remedial works. Depending on the contract value of works, most insurance policies have exclusions for building works exceeding a certain value (often over $500,000)

3. Minutes of committee/body corporate meetings

From the minutes of a committee or body corporate meeting, insurers will be able to determine if:

• The owners corporation or body corporate has taken any action to enable remedial work. Have they sought the help of an inspector or engineer to provide reports? Have they appointed a contractor to carry out remedial works?
• There have been delays or lapses in initiating remedial work – when was the date for commencement of remedial works?
• Any special levies have been raised to fund the work

3. What factors could affect the insurance cover?

The cost and type of insurance cover available for a building with defects will vary between insurers and their underwriting guidelines. Here are some of the factors that insurers will take into consideration:

1. Severity of the defects

• Are the defects cosmetic in nature or do they create a safety issue of potential injury or loss of life?
• Is the defect minor, major or virtually uninsurable?

2. Age of the building

• Is it a new build or existing/older building?
• What is the maintenance history of the building?

3. Legal action

• Is there a current legal dispute with the builder about rectification of defects?
• What is the potential or plan to take legal action in future?

4. Remedial works

• Are formal plans and timelines in place for rectification?
• Do owners have a proactive approach to fixing the defect or are they inactive?
  

Based on all the information gathered, insurers may decide whether to offer insurance cover in the first place and if so, for how much.

Important note
This article is based on information from CHU Underwriting Agencies Pty Ltd (ABN 18 001 580 070, AFS Licence No: 243261) which acts under a binding authority as agent of the insurer QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFS Licence No: 239545). Terms, conditions, limits and exclusions apply to the products referred to above. Any advice provided is general advice only and has been prepared without taking into account your objectives, financial situation or needs. Before making a decision to acquire any product(s) or to continue to hold any product we recommend that you consider whether it is appropriate for your circumstances and read the relevant Product Disclosure Statement which can be viewed on this website or obtained by contacting CHU directly. CHU Underwriting Agencies Pty Ltd (ABN 18 001 580 070, AFS Licence No: 243261) acts under a binding authority as agent of the insurer QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFS Licence No: 239545). CommunitySure available through our brokerage partner, BCB (add BCB ABN and AFSL). Steadfast Group Limited (ABN 98 073 659 677) (‘SGL’) has a shareholding in CHU Underwriting Agencies Pty Ltd and BCB. *If you have a CHU Contents Insurance policy and your strata property is insured with CommunitySure and you and the body corporate / owners corporation make a valid claim for the same event. CHU Contents Insurance standard excess is $500. The value of your claim must exceed the amount of your excess. Last updated in March 2021.

If you’d like to find out more on building compliance for your strata property, click here to download your free Community Living guide. Or for a consultation to review your common property insurance by our CommunitySure insurance team, click here.