Australia's largest underwriting agency of strata schemes has warned that it may refuse to provide cover or make insurance too pricey for apartments in Australian buildings with cladding that does not meet the building code – a move that marks the start of the shakeout in the high-rise sector.
CHU, which insures 100,000 strata schemes across the nation under the
QBE brand, said that while it has yet to refuse cover based solely on non-compliant cladding, it had already priced the risk in some buildings as too high for the insurance to be useful.
"There have been a couple [of cases] where we've said, 'This is potentially a high-risk building – you're doing what you can but given where you are now, the price would probably be more than prohibitive. It would be better to spend on the cladding removal than pay in annual insurance'," CHU head of marketing Jason Starr-Thomas told
The Australian Financial Review.
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According to the report, the move marks the start of a shakeout in the high-rise sector that could prompt owners and banks across the country to reevaluate their apartment stock as they realise that their property does not comply with the building code
"If a building could not obtain insurance, any mortgagee would view their asset as uninsured," Peter Blair, a project director of consultancy Structured Project Management Australia, told the publication. "Insurance is a normal requirement of a lending contract. The lender is likely to take action to ensure the asset is protected."
The move also comes before the enforcement of an amended National Construction Code next year that will require sprinklers in all buildings with external aluminum cladding more than two storeys tall – a new standard that may mean hefty rectification bills for many newly built apartment towers should they be required by local councils or fire brigades to do an upgrade to be compliant.
In the face of such changes, Starr-Thomas said CHU has no plans of exiting the business, but other general insurers were likely to refuse to provide cover.
"You will get some insurers that will just say, 'No, we are not insuring that risk'," he told
AFR. "Straight away, there are implications if a building cannot find insurance. The banks would very much have a good look at that."
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