Bendigo building surveyors and inspectors will gradually be forced to stop work and construction projects will start coming to a halt if a solution to an insurance problem is not found soon.
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The last company to offer building surveyors and inspectors the professional indemnity insurance without exemptions they require by Victorian law will no longer do so from next week.
This means surveyors will not be able to update their registration when their insurance comes up for renewal and will have to stop work.
As a result, they will not be able to undertake the inspections and approvals needed for projects to get under way or continue.
"We'll have a shrinking pool of available building surveyors over the next 12 months," Chris Bovill, owner of Bovill Risk and Insurance Consultants, said.
He said surveyors were experiencing "heartache and stress" as a result of the issue.
Owner of Bendigo-based company Vic Central Building Surveying Adrian Sharman said there was a process through which ongoing projects could be transferred from one surveyor to another.
But that meant an extra cost for the builder, he said, and surveyors generally did not want to take on another's project because it meant they had to accept all responsibility for it.
Mr Sharman said he knew of some in the industry who had managed to get their insurance renewed before the changes came into effect, but were hit with hefty premiums that were several times greater than what they had paid before.
The issue has arisen because insurers have gradually stopped offering policies without exclusions, especially in the wake of such incidents involving combustible cladding as the 2014 Docklands apartment building fire and the 2017 Grenfell tragedy in London.
The Insurance Council of Australia's Karl Sullivan said a recent report showed this market had lost money for a decade.
"Insurers play a crucial role in the building industry but they are at the end of the risk management chain. The situation is unsustainable," Mr Sullivan said.
"Many insurers are reluctant to continue to provide unrestricted PI products to these professionals unless the key issues - flammable cladding and significant defects in building, including the compliance regime failures that have contributed - are addressed by governments and the building and construction sector."
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There are calls for the state government to implement short- and long-term solutions.
"As a relief valve on this pressure cooker we have at the moment, the government needs to allow cladding exclusions in PI policies," Mr Bovill said.
But longer term, he said, the government needed to address the cladding issue and provide financial help, as there was not enough insurance to cover it.
In communication to its members, the Australian Institute of Building Surveyors says it has warned governments of the issue for years and calls for government funding to alleviate pressure on insurers, as well as legislative approaches.
The organisation says it is concerned governments will now implement "knee jerk stop gap measures".
It has said that allowing insurance with exclusions cannot be a complete solution and would compromise consumer protection.
A Victorian government spokesperson said the government was aware of the issue and would be talking to the industry ahead of July 1.
The ICA says the building and construction sector must also take responsibility for building defects.
Mr Sharman said he believed a solution would arise.
"I do expect that there will be an outcome fairly soon... What that is, no one really knows," he said.
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