Recent proposals to reduce consents and inspections, begs the question: Is there insurance available to cover this risk?
In the last quarter of 2024, the Government announced proposals to ‘lift the competence’ of builders and increase penalties as a way to improve efficiency and reduce the cost of building. They want to reduce Council compliance costs by reducing consents and inspections, with insurers picking up the risk instead of the Council should something go wrong with a builder’s work.
This begs the question, is there insurance available to cover this risk?
There are basically three ways this risk can be insured:
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Via a type of professional indemnity insurance, similar to what architects and engineers have in place in case they make errors in their professional services
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Via latent defects liability insurance, which is common overseas but not so much here
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Via a defects guarantee, similar to that offered by Master Builders & Certified Builders
Currently option 1 and 2 are not readily available in New Zealand for construction risks. Builtin used to provide professional indemnity insurance that would cover the errors & omissions of building contractors, but the insurer withdrew from the market around 2021. We also used to have a source for latent defects liability cover, but this market closed even earlier. The reasons for this are mainly due to the effect of global trends and insurer risk appetites changing in relation to the construction sector, particularly after the Grenfell Tower fire in the UK.
Recently, latent defects cover has been introduced in Australia, driven by NSW Government requirements, so there is potential for something to open up here and we are working hard to find an insurer willing to enter our market.
Is your current insurance adequate to cover your risk?
This becomes very clear when you note the number of projects still taken on without written contracts or the use of Construction Contracts Act compliant payment claims!
What insurance does and doesn’t cover is also not well understood, particularly when it comes to liability, a very complex area that often involves lawyers, legal precedent and legal interpretations. This is particularly true with defective workmanship issues or issues involving liability for work done by subcontractors.
Not only do you need to have the right cover, you also need to have professional advisers that can navigate these complex issues on your behalf, both to ensure you have the right cover in the first place and to advocate if/when claims arise.
Managing risk is a key requirement for company directors and business owners. Insurance is one aspect of this, but it is the ambulance at the bottom of the cliff. A comprehensive risk management plan can both save money on insurance premiums and prevent problems occurring in the first place.
If you’d like to review your current insurance and get a better understanding of what you are (and aren’t) covered for, contact Builtin today.
For more articles on the topics of risk, liability and insurance for builders and trade professionals see:
Builtin are New Zealand’s Trade Insurance Experts
For more information visit builtininsurance.co.nz
or contact Ben Rickard, Construction Risk Adviser and Director | ben@builtin.co.nz | 0800 BUILTIN
Disclosure: The information presented in this article is general in nature and not intended to be financial advice for individual situations. You should speak to an expert about your specific circumstances and needs.
