Understanding the Impact of Cladding on Strata Building Insurance

The Grenfell Tower Tragedy and its Influence on Cladding Insurance:

The Grenfell Tower tragedy in London stands as a poignant example that has profoundly impacted insurers' approach to cladding. This catastrophic incident, which claimed 72 lives, underscored the hazards linked with combustible cladding. Following this event, insurers have significantly intensified their vigilance when it comes to insuring buildings featuring cladding. The tragedy has served as a wake-up call, prompting insurers to reassess their strategies and tighten their risk assessment procedures.

Key Factors Considered by Insurers for Cladding Risk Assessment:

Insurers meticulously evaluate various key factors to gauge the risks associated with cladding. Firstly, they scour reports indicating the presence of combustible cladding and recommendations for its removal or mitigation. Insurers are particularly interested in understanding the actions taken by building owners in response to these reports.

Furthermore, insurers factor in the accessibility of cladding to fire services. Buildings where cladding is easily reachable by fire hoses, especially on lower floors, are perceived as less risky compared to multi-story buildings with cladding positioned at greater heights.

Insurers also draw a distinction between horizontal and vertical cladding. Vertical cladding poses a heightened risk, as fire can ascend the cladding, whereas horizontal cladding does not facilitate vertical fire spread. This differentiation plays an instrumental role in insurers' risk evaluations.

Strategies for Addressing Cladding Risks in Strata Buildings:

Strata Insurance Solutions has actively engaged in discussions with clients concerning the planning phase of addressing cladding concerns. While some states and territories, such as Queensland, are yet to provide specific guidance or assistance packages, others have taken proactive steps. However, insurers are swiftly implementing guidelines and prerequisites, often outpacing government authorities. This situation poses challenges for clients seeking insurance coverage.

Strata Insurance Solutions strongly advises against waiting for government directives and instead encourages proactive measures to mitigate cladding risks. The considerations go beyond government guidelines and encompass insurance availability and the duty of care owed to building occupants.

Importance of Taking Action and Available Options for Cladding Remediation:

Neglecting to take action in response to recommendations for cladding removal can expose strata buildings to liabilities associated with breaching their duty of care during a major claim. The cost of inaction can outweigh the expenses linked with urgent remedial measures. Strata buildings must carefully weigh the potential impact of higher premiums against the savings offered by government assistance, such as interest-free loans.

Insurers scrutinise the steps property owners have taken to assess their impact on insurance coverage. We will delve into the various options available for cladding remediation and how insurers consider them:

1. Complete removal and rectification of cladding or compliance with risk engineering recommendations are the most favorable actions.
2. The second most preferred approach involves approved works and a designated start and finish date for cladding removal.
3. Holding an Extraordinary General Meeting (EGM) or Annual General Meeting (AGM) to discuss cladding removal ranks as the third most favored action.
4. The subsequent preferred approach includes a clear plan outlining timelines, relevant documents, and inspections for cladding removal.
5. Taking no action at all can render a building uninsurable if the fire risk is deemed high by insurers.

Guidelines for Building Owners to Ensure Insurability:

Strata Insurance Solutions emphasises the need for buildings to develop an Action Plan and incorporate it into committee meetings' agendas to address cladding concerns. Bodies Corporate and Owners Corporations should seek tailored advice as insurers assess cladding risks on a case-by-case basis, considering factors such as fire hazard and recommendations from professional inspectors. Prioritizing the well-being of occupants remains paramount.

Property owners can safeguard their buildings' insurability by comprehending the complexities surrounding cladding risks and taking proactive measures. Strata Insurance Solutions provides invaluable expertise in this area and encourages property owners to promptly address cladding issues. By doing so, they shield themselves from potential liability and fulfill their duty of care to occupants, cultivating a secure and safe living environment.

Understanding the impact of cladding on strata building insurance requires a comprehensive assessment of various factors. The lessons from the Grenfell Tower tragedy have prompted insurers to intensify their scrutiny of cladding risks. Property owners must adopt proactive strategies to mitigate these risks, ensuring their buildings remain insurable while prioritising the safety and well-being of occupants. For more insights into Strata Insurance Solutions, follow them on LinkedIn and YouTube. Strata insurance continues to play a pivotal role in safeguarding properties and occupants, and Strata Insurance Solutions stands dedicated to delivering tailored solutions for Australian audiences.