Mascot Towers latest to impact PI market

Mascot Towers latest to impact PI market | Insurance Business

Mascot Towers latest to impact PI market

It seems just weeks ago that Australia was discussing Sydney’s Opal Tower crisis, in which all residents were evacuated as a result of building defects, but now the city has another construction failure on its hands thanks to the troubled Mascot Towers.

The 10-year-old building was evacuated in mid-June after engineers became concerned about cracks in the support structure. Then, just weeks later, displaced residents were hit with more bad news when a follow-up report suggested the complex may be sinking.

“It appears that the building is moving in a downward motion,” outlined the update sent to residents and owners – although no elaboration was offered.

Owners of the building are now charged with finding more than $1 million for urgent repairs – but the final estimated bill is likely to top $5.5 million in fees to owners.

Speaking to Insurance Business, Aon’s national professional indemnity practice leader – Mary-Catherine Thomas – said the situation shows that there is an urgent need for comprehensive property and risk management audits to become more commonplace.

“It is common practice for real estate owners to undertake regular fire sprinkler and smoke system checks, property valuations and maintenance repairs,” she said. “It is far less common to see broader audits on structural integrity or product utilisation.”

Thomas also said incidents such as these are having a material impact on the professional indemnity market – in fact, Aon’s recently released 2019 Global Risk Management Survey (GRMS) found that major project failures pose one of the greatest threats to Australia’s construction industry.

She also told Insurance Business that, in the current market, insureds must satisfy the underwriter that they have undertaken a full review of past projects and have strong risk management practices in place to ensure compliance.

“Insurers want to see insureds are across their risks, understand any potential issues with past projects and have a plan to rectify,” she said. “Failure to demonstrate good risk management and project due diligence will directly impact on insureds’ ability to obtain PI insurance.”

Of course, while the onus is on insureds to demonstrate this, Thomas said the insurance industry also plays a key role in mitigating risk and ensuring adequate protections.

“Brokers and insurers play a role in advising clients of risk controls often missed or lacking with peers that have led to claims,” she said. “Brokers can assist insureds in managing their risk through contract reviews and align insurance solutions as closely as possible to avoid unnecessary uninsured risk.”