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News & opinion

4 JUL 2019

Update to members: PII in Australia – factors for encouragement

Following Opal Tower, we wrote early this year about the value of delivering best practice assurance to Australia’s coregulatory landscape and subsequently the importance of not expecting governments to do all the lifting. These sentiments continue to hold great relevance.

More recent events – including hardening of Professional Indemnity Insurance (PII) for certifiers, continued uncertainty around ACP remediation and another tower failure – have charged public debate about the challenges confronting the building and construction sector in Australia and raised questions about compliance, professional exposure and consumer protections.

We are not seeking here to provide an exhaustive summary of the array of challenges or indeed assess the complex manner in which diffuse policy and industry behaviours interact across the Federation to manifest bad outcomes.

The Building Confidence report of Shergold and Weir provides competent assessment of compliance and enforcement issues, PWC recently provided an interim report to the Queensland Ministerial Construction Council on PII matters and UNSW City Futures Director, Professor Bill Randolph, continues to investigate incidence and possible causes of building defects in multi-unit housing.

Download the Building Confidence report

And it’s important, too, to balance any criticism with reasonable acknowledgement of strengthening market indicators particularly following the return of the Morrison Government.

However, despite ongoing efforts of State and Territory Senior Officers, Industry and governments have hereto failed on the PII matter. This Statement seeks to address key aspects of the PII matter, actions by governments, engagement of RICS with governments, and finally what RICS is doing on its own steam for Industry and the public advantage.

The PII problem for certifiers and contributing factors

The last known insurer writing PII without cladding exclusions withdrew from the Australian market this week from 3 July. Limited capacity (with cladding or broader non-conforming building product exclusions) remains although we note policy conditions are tight, premiums are rising, and many certifiers continue to carry claims-made exposure regardless of recent regulatory changes that enable policies with cladding exclusions to comply with (revised) licensing requirements.

Negative public sentiment toward professional conduct has been fuelled by recent building failures such as Grenfell in the UK and the Opal, Lacrosse, Neo and Mascot towers in Australia. Whilst insurers have been withdrawing capacity over several years for commercial reasons, these largely unrelated events have only amplified uncertainty and perceived claims exposure, and therefore contraction.

Other perceived or real contributing factors we have noted include: lack of industry led mitigations; lack of clarity, uniformity and co-ordination in policy responses of States and Territories; lack of data transparency and/or knowledge sharing; and ineffective government led regulation.

Therefore, absent any solutions to address some or all of these challenges, we anticipate there is reasonable likelihood that the insurance market may continue to harden. Further, as policies come up for renewal, we expect further constriction in the supply of competent and accredited certifiers willing and able to undertake work on buildings affected with ACP.

What are governments doing?

The drafting of the Australian Constitution dictates that State and Territory governments carry the responsibility of enforcing and upholding standards in the sector. And we are aware of significant activity behind the scenes by these governments.

Wider industry reforms – including the Queensland Building Plan 2017 (Qld), regulation supporting the Building and Development Certifiers Act 2018 and prospective appointment of a Building Commissioner (NSW), and the Cladding Rectification Agreement scheme (Victoria) – are already in play across Australia and many of these contain elements that give life to recommendations within the Building Confidence report.

NSW government recently amended regulation to allow cladding exclusions and, following the Ministerial Construction Council this week, we anticipate similar regulatory relaxation in Queensland. As of writing, Victoria is yet to announce its specific response to the PII issue although we understand it is considering all options.

Governments also continue to engage externally either through direct engagement or by inviting industry into consultation through formal vehicles including the Building Ministers’ Forum (BMF) and the Senior Officers’ Group (SOG). We expect the next BMF on 18th July to facilitate a robust discussion on PII and related matters.

How is RICS formally supporting governments?

Although it is not possible to provide a full account of RICS engagement with governments here, the following is an overview of our efforts over the past two months particularly on the Eastern seaboard where a significant volume of total building assets, affected by ACP, and practising professionals are located.

In Queensland we are engaging with the Department of Housing and Public Works, the Ministerial Construction Council chaired by the Minister for Housing and Public Works, Hon Mick de Brenni MP, and participated in the PWC consultation.

In New South Wales we are engaging with the Department of Customer Service (formerly the Dept of Finance, Services & Innovation), attended the Roundtable on ‘Building Stronger Foundations’, supported the SOG investigation into PII led by NSW, and contacted the Minister’s office.

In Victoria, we continue to work with both the Department of Environment, Land, Water and Planning and the Victorian Building Authority, and our Global Building Standards Director and the leading fire safety expert in UK, Gary Strong FRICS, will be meeting with the Minister for Planning, Hon Richard Wynne MP, later this month.

governments cannot succeed without industry support and professionalism can’t simply be enforced, it must find a home in the hearts and minds of those people working daily in the industry.

RICS

What else is RICS doing for industry and the public advantage?

Government panel with Q&A

We are hosting our Building Confidence conference in Sydney on 1 August.

And we are very pleased to announce that Senior Officers – responsible for policy and regulation – from Queensland, NSW and Victoria have agreed to participate in a special government panel and Q&A session in the afternoon.
 
This is a fantastic opportunity for attendees to hear directly from relevant government officials, make their own assessment and ask questions they feel deserve treatment or consideration.

The broader conference brings together senior stakeholders from Industry and governments to identifying examples of best-practice activity and disruptive thinking that are improving behaviour across the sector. The central theme is to place competence, certainty, confidence, growth and the interests of the public – including that of the professionals carrying the industry – at the centre of our collective concern.

RICS assurance – unique capabilities

In noting the factors contributing to a hardening of the PII market for certifiers (above), it is worth setting out seven critical and distinguishing features of RICS assurance capabilities:

  1. Public interest – pursuant to its Royal Charter obligations, RICS seeks to promote the profession for the public advantage (not just its members);
  2. Standards development – RICS leads global coalitions to develop best-practice international standards (ICMS, IPMS, IFSS, ILMS etc);
  3. Chartered Surveyor – the bar to qualify for Chartered Surveyor status is very high with stringent assessment criteria and competency frameworks;
  4. Pro-active regulation – RICS regulates over 130,000 professionals and 10,788 firms across the globe;
  5. Industry recognition – critically, is recognised by Lloyds of London and local senior property professionals for providing best-practice assurance to the market;
  6. Knowledge sharing – the Chartered Surveyor status qualifies a broad church of professional talent and this cohort drives the building of strong local relationships with senior industry professionals and tier one firms, particularly operating in construction, lending, investment, valuation, project management and certification. This shared knowledge base supports the adaptation of markets and helps buttress uncertainty; and
  7. Liability capping – we maintain a liability capping scheme for our valuation pathway. Express interest has been be shown in Professional Standards Schemes and we are reviewing our ability to broaden our scheme and invite eligible certifiers.

Bringing our capabilities to bear on PII

To the extent the PII matter has been driven by shortcomings in government-led regulation, the coregulatory landscape in Australia offers incentive and legitimacy to bring our unique assurance capabilities to bear. In fact, over the preceding 12-18 months, they have been the engine room of our value proposition that is driving two key activities relevant to the PII matter.

First, we are working with a local broker and senior wholesale broker in UK to entice capacity back into the market. This is a priority activity and we have kept Senior Officers informed of progress and will update the market in due course.

Second, we have assembled a senior internal project team to steer the development of a new assurance regime supporting certifiers. The framework for this regime – the Valuation Assurance Regime – already exists in market for Chartered Surveyors undertaking valuation and eligible API members.

As part of the development, RICS is undertaking front-end due diligence to ensure this activity is commercially sustainable, that we appropriately safeguard our reputation and that the regime itself ultimately supports market needs.

The RICS Building Control Assurance Regime project is being led by the Australia team with most senior support from UK including our Director of Regulation, Chris Alder, and Gary Strong FRICS overseeing the standard development. The current intention is to deliver a new regulatable standard for certifiers, supported by a global consultation.

Given this activity is more intensive, we expect a longer lead time and will likewise continue to update the market.

Engagement with other industry bodies

Finally, RICS continues to build relationships with local Industry Bodies who share the view that greater professionalism in building and construction is necessary. There are different views as to how that goal may be most efficiently attained but we are buoyed by the growing support for our assurance capabilities.

Ultimately success here will be a shared endeavour and, as we have stated previously, “governments cannot succeed without industry support and professionalism can’t simply be enforced, it must find a home in the hearts and minds of those people working daily in the industry".