This article explores the critical considerations for property owners and developers when constructing new buildings.
Concerning trends around poor Design and Quality
Over the past two decades, the building industry has witnessed a number of concerning trends around the quality and design aspects of new large multi-level developments. A key concern is the design of the building, which does not seem necessarily intended to last decades, and we are seeing an increased frequency in the number of structural defects, waterproofing failures and water ingress concerns. Further to this is the use of lower-quality building materials that are less durable than traditional ones. For example, plumbing failures are becoming far more common in new buildings due to the use of PVC pipes, which have a 25-year lifespan in new builds, instead of traditional copper or galvanised steel, which has a 70 – 100-year lifespan.
The cutting-edge new designs in structural integrity are well documented and the relatively new approach of incorporating significant garden rooftops and balcony greenspaces have been promoted as one of the best ways to green new buildings, however for more than a decade, insurers have been warning of water membrane failures, poor maintenance practices and fire hazards if new buildings are not carefully monitored. We encourage property owners and developers to assess long-term risks that are present in the design and quality of the new build and ensure that appropriate risk surveys are carried out pre and post-build.
Navigating Insurer’s Appetite
When engaging in the quoting process for new developments, insurers review a number of factors that significantly influence the premiums they offer. These factors encompass various elements, such as perceived property risks—factoring in elements like construction materials, occupancy of commercial tenants, location, the environments susceptibility to natural disasters, fire safety measures, and security protocols. An in-depth evaluation guides the insurance landscape for new developments. Each insurer has a unique set of underwriting guidelines and specific appetites that may include or exclude certain risk exposures.
Insurers are known to quickly and significantly amend their appetite and pricing for large multi-level developments and indicative quotes of insurance premium at the start of a new build have been know to become redundant and have a pricing variable of 50%-100% or more by the time that practical completion is achieved sometimes many months or years later.
Deliberate Selection of Building Materials
We emphasise the criticality of meticulously selecting construction materials. This choice holds the potential to profoundly impact the insurance coverage lifecycle for the Body Corporate. Notably, structures constructed with inferior materials, such as flammable cladding or NRG Greenboard (rendered EPS foam), tend to attract fewer insurers and higher premiums. The hesitance arises from concerns regarding the long-term durability of such lightweight cladding. Instances have arisen where a sole insurer offered quotes for structures with subpar materials, leading to substantially elevated premiums compared to more robust construction options. This is common for buildings made of a large percentage of inferior materials.
Strategically Timed Insurance Placement
A strategic insurance placement becomes essential upon the achievement of practical completion and the transition from the construction phase. The construction policy ceases to provide coverage at this juncture. Post the registration of the body corporate, the onus falls on the developer to secure insurance for a full year from the registration date. This requires an endorsement to extend the policy's expiry date to align with this requirement. Some insurers stipulate mid-term policy cancellation and subsequent reinstatement for a complete 12 months from the registration date, guided by their underwriting principles for maximum policy duration.
Precise Insurance Valuation
We address concerns regarding second-year premium increases within Bodies Corporate following property valuations. Instances have unfolded where developers inadvertently underestimate the full replacement cost for the body corporate. Opting for insurance coverage solely based on the project's construction cost can result in insufficient coverage in the event of a total loss. A comprehensive insurance valuation should factor in debris removal, professional fees, escalation, and complete rebuilding expenses. Insuring solely for the initial build cost exposes the body corporate to underinsure risk. We strongly advocate for an independent valuation before practical completion or within 60 days thereafter, ensuring the initial premium accurately mirrors the building's complete replacement cost.
Nuances of Staged Developments
Staged developments introduce unique considerations as projects progress through various phases. This evolution necessitates adaptive insurance requirements. Elements such as partially completed structures, fluctuating property valuations, and varying risk profiles contribute to premium fluctuations. While certain underwriters may express caution toward staged developments due to associated risks with ongoing construction, others may require additional underwriting data to assess perceived exposure accurately. Many insurers will avoid quoting stated developments until all stages of the development have been completed.
Addressing Defects Proactively
In alignment with evolving standards, some states mandate that the Body Corporate obtains defect reports before the second annual general meeting. Insurers emphasise timely rectification of critical defects that jeopardise safety and the effective handling of other defects. Transparent disclosure of defects to insurers for evaluation proves pivotal. In some instances, insurers may impose risk requirements on the Body Corporate, with a specific focus on defects related to passive fire protection and inadequate waterproofing. Best practice is to provide a clear rectification plan along with the defects report.
With you all the way
To find out more or to discuss your insurance needs, please reach out at any time. Through collaborative efforts, we can tailor insurance strategies to enhance the success of your developments.