KBI Strata Insurance Update

The local impacts of these recent events are far-reaching, both in Perth and throughout the country. The WA government in particular have issued an audit of Perth buildings to evaluate their cladding in hopes of preventing a catastrophe like those we’ve seen world-wide. During the initial investigations by the WA Building Commission, it was found that a Leederville Apartment was constructed using cladding similar to that of the Grenfell Tower, forcing the commission to vastly expand its audit throughout WA to assist in the prevention of similar situations.

(See this article from ABC for further information on the local implications)

These events have had an immediate effect on global insurance markets, as insurers have been put on notice for circumstances that could give rise to similar situations. As detailed in this article by EC3 Legal, a main point of focus for insurers is on combustible cladding. This defective material acts as an accelerant to a flame, increasing the rate and severity in which it spreads across a building, attributing to a heightened chance of a total loss.

Some key implications to watch for in the insurance market are outlined below:

• Tightening of restrictions to cladding materials: Many insurers are limiting the new buildings they will insure to those that are “Loss Prevention Certification” approved, which will most likely result in an overall hardening of the property insurance market – causing a market-wide premium rise.

• Review of insurance exclusions in relation to design flaws: It is likely that insurers will conduct a review of their property products with regards to how they will respond to losses caused by defective materials/combustible cladding. This could have effects on both the current circumstances (buildings included in the above mentioned audits) and future situations (upcoming losses with similar causations).

• Decisions on how policies will respond in the case of non-disclosure: This is related to situations where key persons are responsible for disclosing circumstances that could give rise to a loss. This is specifically related to buildings where a loss could have been prevented during the installation period.

• Requirements on fire prevention techniques: It was reported that at the time of the fire, the Torch Tower in Dubai did not have sprinklers installed. This is a standard loss reduction method included in many Australian buildings, and something that insurers view favourably.