The Constant Cladding Crisis

Australia has been subjected to one of the most harrowing summers in recent memory, with widespread and catastrophic bushfires combined with other severe climatic events including hailstorms, flooding and cyclones.

While these events have understandably dominated the media space, the burden for unit owners in regard to cladding, and the costs associated with rectification, has remained a constant.

While a national approach to dealing with the cladding crisis seems to be generally agreed by all major stakeholders, implementation of this ideology has been more difficult, with States and Territories managing the issue differently.

Victoria issued guidelines for a combustible cladding funding scheme in December 2019, whereby property owners for buildings deemed higher risk or subject to Building Orders may be eligible for monetary support to help rectify non-compliant buildings.

As of 28 February 2020, New South Wale’s cladding taskforce has inspected 4,127 buildings with 459 of these currently under review.

Queensland implemented a three-tiered compliance process in July 2019, with the third and final stage scheduled for completion by May 2021.

With different jurisdictions tackling the cladding issue in opposing ways, it’s little wonder lot owners remain confused and seeking direction as to the appropriate steps to take moving forward.

Strata Insurance continues to be affected by the presence of cladding, whether it be in the form of Aluminium Composite Panels (ACP) or Expanded Polystyrene products (EPS). Local events (Lacrosse fire 2014 & Neo200 fire 2019, both in Victoria) as well as incidents abroad (Grenfell Tower fire in London, 2017) highlight the combustibility of these products.

While cladding presents an obvious and significant exposure for insurers, this is of little concern to lot owners. Understandably, owners simply want to protect their most valuable asset and meet the legislative requirements of insuring for the full replacement and reinstatement value.

Some insurers have turned to applying significant excesses and/or restrictions in cover, while other industry participants have chosen to avoid buildings with combustible cladding all together, leaving Owners Corporations/Bodies Corporate exposed or even uninsured.

The presence of cladding, even in circumstances deemed to be compliant with relevant Building Codes, still presents an increased exposure to insurers – predominantly due to potential rapid spread of fire. This exposure needs to be factored into the premium tendered by an insurance provider.

Not all apartment buildings with cladding are equal, and may differ in exposure depending on the: 

– Total amount of cladding coverage on the façade of the building – Number of floors in the building 

– Type of product installed and location of installations, for example: 

  • Are combustible panels situated around trafficable areas, such as main entrance ways or emergency exit routes?
  • Are fire breaks evident or do the panels continue uninterrupted the entire vertical span on the building?

– Extent of fire sprinkler installations throughout the building, including wall drenchers or sprinkler protection over balconies.

CHU has continued to support the industry by offering insurance solutions regardless of ACP type and without applying exclusions on cover. To date, CHU has not declined to offer insurance cover exclusively due to the presence of ACP and continues to work with the SCA and other regulatory bodies to try and ease the pressure on owners in relation to cladding.

Disclaimer: 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). Any advice in this article is general advice only and has been prepared without taking into account your objectives, financial situation or needs.

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