Roadblocks to Gaining Insurance Coverage

Highly combustible materials have become infamous for their significant role in several recent residential multi-storey building fires. From Lacrosse Apartments in Melbourne to Grenfell Tower in London, these high-risk building materials have been proven to aid in the quick spread of flames.

If your residential or commercial building uses non-compliant combustible cladding materials such as Aluminium Composite Panels (ACP) or Expanded Polystyrene (EPS), it’s not only your personal safety that could be at risk. You need to take into account how this will affect future insurance claims or coverage as governing bodies start cracking down on their legality.

Insurance companies operate by taking on what they consider ‘reasonable risk’. This assumes that a building is thought to be safe and insurable independent of external factors. If a building material, such as cladding, is considered to increase the insurer’s exposure, this can directly affect insurance premiums and deductibles, claim success or even the ability to gain proper insurance for a building with these materials. With ACP and EPS being highlighted in the media in a negative light, many query how this will affect building insurance moving forward.

Kerin Benson Lawyers believe this problem could potentially affect residential building owners differently than those seeking insurance for commercial buildings. This is because the latter’s insurance premiums are larger and thus more likely to offset the risk. With a slimmer profit margin, residential buildings may not be awarded the same insurance coverage as commercial buildings. This may become a significant concern as insurers seek to protect themselves from increased risk and potential large payouts by reviewing their current policies surrounding the use of non-compliant materials.

Some insurers push the recommendation of disclosing all buildings materials truthfully to your insurance provider. While some building owners may think that they can avoid large deductibles by failing to mention non-compliant materials, the removal of these items from your insurance statement can negate your right to claim if an incident occurs. Recognising these materials is critical in assessing the potential risk associated with your building cladding. Correctly reporting your material usage will increase the chance of your insurer responding to your claim relating to cladding.

As stated in the Insurance Council of Australia’s Reporting Protocol for ACPs, each building will be considered on a case by case basis. The product manufacturer, location of installation, occupation capacity, fire safety systems, considered exposure and other factors will all need to be considered before deciding on an insurance premium or level of coverage.

Knowledge of a variety of different building aspects will be necessary before a qualified insurer can assess the costs of building insurance. In some cases, building owners have opted to remove the non-compliant materials rather than pay the increased premiums. Though this will also require a significant financial investment, it may be counterweighted by the decrease in future payments.

Want to learn more?
You can explore our cladding services here or contact us at Maz Group for more information.