There are some common queries regarding insurance issues. Master Builders has developed a series of frequently asked questions (FAQs) to assist builders, owners and trade contractors to understand some of the complexities surrounding various insurance matters.
NSW Home Warranty Insurance update - changes deferred to 2 October 2018
The NSW Government’s Home Building Compensation Fund announced on 14 June 2018 HBCF premium increases effective from 1 July 2018. On 29 June 2018 HBCF announced they have deferred the required premium increases to Home Warranty Insurance scheduled for 1 July 2018 until 2 October 2018.
The increases vary based on the Construction Type of the project, plus the individual risk profile of the builder. There will be no increases in premiums for multi-unit projects at this time.
Why are premiums increasing?
HBCF advise in addition to the two increases in 2017, this premium increase and that scheduled for 1 July 2019 aim to take the Fund to a sustainable basis (or break-even position) consistent with the objectives of the Government’s reforms.
Why have the premium rates for new duplexes, dual occupancies etc. and new multi-dwelling (unit) categories been separated?
HBCF advise the rates for new multi-dwelling (units) and new duplex etc. construction types have been split to form their individual rate classes. This breakdown aims to better reflect the underlying risk profiles of the two construction types and removes cross-subsidisation between them. The rates aim to achieve a sustainable basis and better reflect the higher risks and claims experience associated with defects within these two construction types.
NB: The categories of new multi-dwelling (unit) construction, alterations and additions
(C02, C03, C08) remain under review to determine the pricing response as a stand-alone group to emerging experience in these segments.
What are the Changes to the Risk Based Pricing Regime?
HBCF advise there are two main changes. The first concerns the merging of previous separate factors of the period an entity’s licence has been held and the structure of the entity.
The second is the correction of an anomaly whereby a director’s assets have been included as part of the entity’s assets when calculating the ANTA position for pricing purposes.
What is the change to the premium weighting factors for the period entity licence held and entity structure?
HBCF advise these factors previously calculated separately have been merged. The level of discounting and loading impact has been refined to change for each year an entity’s licence is held (previously a longer period was applied). This means an increased discount (or lesser loading) will apply on each anniversary of issue of an entity’s licence (until the overall maximum cap is reached).
Sole traders and partnerships continue to receive a discount relative to companies and trusts. However, for each additional year an entity holds a licence, the level of reduction in loading or increase in discount will be higher for companies and trusts compared to sole traders and partnerships (until the overall maximum cap is reached). This change reflects the larger improvement in claims experience for an older company or trust compared to an older sole trader or partnership and a younger company or trust.
What are the changes to the premium weighting factor for Adjusted Net Tangible Assets (ANTA) in entity?
HBCF advise the premium weighting factor is intended to be evaluated based on the latest (June 30) ANTA of an entity without consideration given to a director’s personal ANTA. Currently, due to a system implementation issue, a director’s personal ANTA in addition to the entity’s ANTA over a two years average has been used as the basis of determining the weighting. This will be corrected from 1 July 2018.
Company entities that have had a director’s personal position included in their ANTA position are likely to experience a deterioration in the weighting for this factor.
What happens where there has been no recent Eligibility assessment undertaken?
Where an assessment of a builder’s or contractor’s Eligibility has not been completed within the past two years (i.e. based on financials for 30 June 2016 onwards) the premium weighting will be based solely on the period the entity licence has been held and the entity structure.
What risk factors impact on the premiums?
HBCF advises the final discount or loading will be a weighted outcome of all factors capped at either 30% discount or 30% loading impact.
The factors do not differentiate on builder size, with all builders presented with the same criteria against any Eligibility review. Builders that are not required to submit annual programmed reviews and/or who have not had a review undertaken in the past two years (i.e. based on financials for 30 June 2016 onwards) are only assessed against the entity licence period / business structure risk factor.
Entity licence period / business structure (i.e. sole trader, partnership, company and trusts)
Discount or loading
icare HBCF’s claims experience is that claims are significantly less likely where entities operate as sole traders or partnerships and the longer a licence is held.
As a result, sole traders and partnerships (other than partnerships that include a company) receive a discount as do entities that have been licensed for longer periods. Entities that operate as companies (and/or through a trust arrangement) and entities that have been licensed for shorter periods will attract a loading.
The longest held licence of an entity in a group secured by a Group Trading Agreement (GTA) will apply to all group members.
For entities that operate in other jurisdictions the longest held licence will apply.
Adjusted net tangible assets
(ANTA) in entity
Discount or loading
The adjusted net tangible assets (ANTA) retained in an entity can generate either a discount or loading impact for a builder based on the latest (June 30) financials:
For GTA secured groups this pricing factor will consider ANTA retained in the grouping against GTA group turnover.
NB: For companies ‘retained’ ANTA does NOT include a director’s personal ANTA.
Net profit before tax or taxable
Discount or loading
Claims experience indicates that entities that have generated strong net margins for each of the past three trading years have a low likelihood of claims and as such will have a discounting impact.
Entities that generate net losses for each of the past three trading years have a high likelihood of claims and as a result will have a loading impact.
NB: For GTA groups – this pricing factor is based on the combined Net Margin of the eligible builders within the GTA group (i.e. where only consolidated financials have been provided for the group the outcome will be a Nil impact).
Applies where there is significant and recent history of builder principals being linked to failed entities which have generated HBCF insurance claims or material unpaid creditors or other characteristics are identified as part of an assessment that present a substantial risk to icare HBCF.
These cases will attract a loading impact that recognises the increased risk.
For GTA groups - adverse history relating to one eligible builder group member will generate a loading impact on all eligible builders in group.
Reviews not current
Reviews are scheduled for higher risk businesses earlier in the annual review program.
A scheduled review that is 30 days overdue and does not permit an assessment to begin will attract a loading.
Overdue reviews include cases where:
For GTA groups - the overdue review pricing factor will be applied should required information for any GTA group member be overdue (including builder or non-builder members).
For more information, please contact our Master Builders Insurance Services team today.
Who arranges insurance for pre-existing property during building works?
This is a question regularly posed by both builders and property owners alike and the answer is really quite simple; it is the responsibility of the property owner to effect and maintain insurance on their own property, unless the building contract states otherwise.
It is vitally important that both the builder and the property owner sort this matter out prior to the works commencing, because if it isn’t and the owner’s property is damaged, a dispute is almost certain to follow. This of course is a predicament neither party wants.
What do I need to do?
To avoid this happening, both parties should start by checking the insurance clauses in the building contract. These clauses will clearly set out who has what obligation to arrange the various insurance policies needed. If you find that the contract is silent in respect of insurance for pre-existing property, it will continue to be the property owner’s responsibility just as it was prior to the works due to the fact that the building contract has changed nothing in this regard.
The most common contractual requirements however, are shown below.
|Policy type||Summary of cover||Responsibility|
|Construction Works||Comprehensive cover for damage to the works in progress. It is important to note that this policy only covers the new works, not other property at the site unless it is specifically extended to do so.||Builder|
|Public Liability||Legal liability for third party personal injury or property damage, including the builder’s liability to an owner’s property (but take note of the issues below).||Builder|
|Owner's Property||Depends on whether the owner’s current policy on the property is maintained, or the owner organises cover by extension of the construction works policy.||Owner|
It is recommended that if these obligations are adhered to, the possibility of uninsured damage and a subsequent dispute is very unlikely.
It is a fact that all too often, both builders and owners mistakenly assume that the builder’s public liability policy will be sufficient to protect the owner’s property, as this policy covers the builder’s liability for damage to third party (which includes owner’s) property.
The flaw in this presumption is that public liability cover does not directly insure the owner’s property. As the name implies, public liability only insures the builder’s legal liability to it and it does not automatically follow that all occurrences of damage will be determined to be the liability of the builder from a legal perspective.
- If the owner’s insurance company will not assist with appropriate cover for the owner’s building, Master Builders Insurance can usually help. Availability of insurance for owner’s contents on site will depend on the particular circumstances involved.
- In situations where a building is totally vacated by the property owner and put into the care of the builder, the above issues may be changed. Should this be the case, builders should contact Master Builders Insurance to discuss the specific position and subsequent insurance needs.
Public liability insurance – how much cover do you need?
The amount of public liability insurance you carry can be vital to the survival of your business and you should consider a number of issues. No two businesses are the same and the best person to assess the needs of your particular business operations is you.
Whether you are a builder or trade contractor, the amount of public liability insurance you hold can be vital to the survival of your business, in the event of a serious liability claim against you.
Understanding your decision
Deciding on the limit of liability (or sum insured) for your policy requires careful consideration, but before weighing up some of the factors necessary to select an adequate sum insured, it is worth a quick look at some basics of a public liability policy:
- You are insuring against your legal liability to third parties (other persons)
- Cover is for occurrences of personal injury or property damage
- The occurrence causing liability must be in connection with your stated business activities
- The occurrence must happen during your period of insurance
- Cover provided is for any one occurrence, subject to the sum insured of your policy.
As can be seen, the first four items are reasonably straight forward and quantified in your policy. The sum insured however, is not of a definitive nature and it is left to you to determine what is adequate for your own circumstances.
Things to consider
To assist in deciding what sum insured is right for your business here are some aspects of public liability insurance coverage, how a policy responds and some other issues we suggest you should take into take into account:
- Contractual obligations: for works under contract, check the insurance clauses for the minimum level of cover specified
- Insurance coverage for "any one occurrence": this means that your sum insured needs to be sufficient to cover all claims against you that arise from “any one occurrence”. For example, if an accident happens and 2 or 3 people are injured, your sum insured needs to be enough to cover all the claims from all the injured persons. Your sum insured does not apply individually or separately to each claimant
- Level of awards: amounts being awarded by the courts, particularly in personal injury cases, are continually on the increase. Multi-million dollar claims for injury to an individual person can and do occur
- Sum insured is fixed at date of occurrence: if an accident happens today, your policy cover is the amount you have in place today. It’s a fact however, that most serious personal injury cases will take many years to proceed through the legal system to the final amount awarded – but your policy cover is fixed at the amount you held on the date the accident occurred. You need to allow for circumstances of a multiple person injury and resultant awards being made at future dates and values
- WorkCover recoveries: WorkCover authorities are very active in recovering monies paid by them to injured workers, if they believe that another party caused or contributed to the injury in any way. The building and construction industry is particularly vulnerable to claims of this nature, due to the multitude of independent businesses working at the same workplace. Bearing in mind the overall site safety responsibilities of principal contractors, exposure to claims arising from injured workers of others needs to be taken into consideration
- Cover for all jobs - large and small: contractors often comment, “It’s only a small job and I don’t need much cover”. This is a serious underestimation, as the degree of personal injury liability is not governed by the size of the works being performed. There is actually a quite credible counter argument that a minor housing alteration, with owners and children in occupancy around the works, comprises a higher risk than a full blown new build site
- When the amount of liability exceeds your sum insured: should it eventuate that the total liability incurred exceeds your sum insured, the balance is payable by you. This is a particularly sobering thought for sole traders and partnerships, as you have all of your personal assets immediately on the line.
It is wise to give proper thought to the amount of public liability insurance you take out. No two businesses are the same and the best person to assess the needs of your particular business operation is you.
A public liability insurance limit of $20,000,000 has now become a frequent contractual requirement and given current trends, this level of cover is certainly advisable as the minimum amount to hold.
Remember that serious claims can and do occur on a regular basis and it does not make sense to risk your business or personal assets, by only carrying minimal public liability insurance.
Master Builders Insurance Services is here to help. Learn more about public liability insurance by clicking one of the below or email our team today.
Public liability insurance for builders – what does it cover?
Having public liability insurance is a necessary part of running a business in the building and construction industry. But, like most types of insurance there is no such thing as a standard policy and it is important to ensure that the policy you buy suits the needs of your business.
The right policy for you
It is very important that you ensure the policy you buy suits the needs of your business. The following information can help you to make the right decision. First, consider the base structure of a public liability policy.
What public liability insurance covers you for
The purpose of public liability insurance is to indemnify insured parties for legal liability to third parties for personal injury or property damage arising from an occurrence in connection with the insured business.
Let’s break that down...
- ‘insured parties’: Make sure that all parties that need to be insured by your policy are included. Consider current and past trading entities, subsidiaries, contract principals, subcontractors, consultants or any others.
- ‘for legal liability’: You must be legally liable for what has occurred. This generally means that you must be at fault or negligent in some way, in causing any damages that are claimed against you.
- ‘to third parties’: Meaning other persons or their property. It does not insure any damages to you or your property as you cannot hold yourself legally liable for causing your own injuries or damages.
- ‘for personal injury or property damage’: The policy only responds to pay compensation for liabilities arising from these injuries or damages. Pure financial issues like fines for workplace health and safety breaches, contractual disputes and penalties (such as liquidated damages) are not insured. Note: Personal injury does not include your statutory WorkCover obligations.
- ‘from an occurrence in connection with the insured business’: Policy coverage is limited to liabilities in connection with the type of business specified in the policy. Check that your business description is wide enough to cover all that you do. For example, a business description in the policy of ‘builder’ may not be sufficient to include the commercial hiring out of plant items to others (if you do that).
In addition to the above basic elements, the policy will also include defence costs, which are legal costs and expenses incurred with the consent of the insurer, in defending insured claims and actions against you for personal injury and property damage.
What else does public liability include?
With the previous aspects correctly in place, you should consider policy limitations and amendments or extensions that are available. Remember that standard policies can be quite restrictive and, whilst the following suggestions are not exhaustive, nobody knows your business better than you. If you have a particular need, refer it to your insurer to establish availability of coverage.
Learn more about our public liability insurance for builders included in our Master Builder Platinum Protection™ insurance policy.
Let Master Builders Insurance team help you. We have a team of friendly experts on hand to help you decide on the best insurance cover to suit your business.
What is the difference between public and products liability insurance?
Public and products liability insurance for builders and tradies are insurances that provide protection for amounts you may become legally liable to pay for compensation in respect of third party personal injury or property damage, as a result of an occurrence in connection with your business activities.
But what is products liability insurance all about and what is the difference between public liability insurance and products liability insurance?
Understanding the basics
To answer this question, it must first be understood that the basic covers for public liability and product liability insurance are the same in that they both provide protection for amounts you (the insured party) may become legally liable to pay for compensation (damages), in respect of third party (other persons) personal injury or property damage, as a result of an occurrence in connection with your business.
However, the significant difference between the two is that public liability insurance provides cover for occurrences that happen whilst your works are actually being performed and products liability provides cover for occurrences that happen after the works have been completed and handed over.
And what this really means is that if you only hold public liability insurance, you are probably only insured for half of what you need.
So what is the easiest and most cost effective way to be properly insured?
Master Builders Insurance recommends the most effective method to manage your differing exposures and policy response, is to arrange both public and products liability insurance under a combined annual policy that will cover all of your works. The golden rule is to make sure you have insurance in force on the date an occurrence causing a claim against you actually happens.
With an annual policy, you will have continuous coverage in place for occurrences that happen at any stage throughout the policy year, irrespective of whether the claim against you arises from your current works in progress or your completed works.
It is worthy of note that insuring job by job can leave you seriously exposed to uninsured products liability claims, as you only insure each job for a specified period and this method makes no allowance for claims that may arise from completed works.
An annual public and product liability insurance policy with Master Builders will ensure you're fully covered and also cost less than separate premiums on a job by job basis.
Learn more about public and products liability insurance by clicking one of the below or email our team today.
Why do subcontractors need public liability insurance?
Subcontractors who operate their own business should also take out their own public liability insurance, as unless there is a specific provision in a builder's insurance policy, you are not covered.
Don't assume you're covered
Builders operate their own independent business and as such, take out their own insurance which provides protection only for the parties stated in their policy (usually the builder's directors, partners and employees). Likewise, subcontractors who are operating their own business should also take out their own public liability insurance policy.
To avoid any misunderstandings in this regard, you can review the insurance clauses under any contract of engagement to ascertain exactly who has what insurance obligations. However, in doing so, you should keep in mind that builders are rarely responsible for providing public liability insurance for their subcontractors.
On any building site, there can be a multitude of businesses in operation at any given time. Each business should carry their own public liability insurance to cover claims against them, which may arise from the performance of their works.
Having your own policy gives you control
Construction sites can be hazardous places where, regrettably, serious accidents can and do occur. Subcontractors cannot afford to get their public liability insurance wrong and by carrying your own policy, you are the one that is in control.
With Master Builders Platinum Protection for Tradies you have access to a wide range of policies that deliver comprehensive coverage at very competitive prices.
Is asbestos removal covered with public liability insurance?
Having the right public liability insurance is a must for asbestos removal businesses. Most standard public liability insurance policies either exclude cover for asbestos related events entirely, or at best are significantly restricted.
Asbestos removal liability insurance can be arranged as:
- Annual cover for asbestos removal contractors
- Stand-alone asbestos removal contracts.
Make sure you're covered
When choosing an insurance provider, an important issue to consider is the basis of policy trigger. Some asbestos removal policies respond to the date of notification to the insurer of a claim being made (claims made cover), whereas other policies respond to the date the incident occurred (occurrence based cover).
The basis of policy trigger can make a significant difference as to whether a claim will be covered. This is because asbestos related illnesses can take many years to be detected after the inhalation of asbestos fibres.
Many insurers who provide this cover are offshore, so it’s important to also check that if you have a dispute with your insurer, that the matter would be heard under Australian jurisdiction before an Australian court.
For peace of mind, ask an insurance specialist to provide specific details outlining the differences of various covers. Phone Master Builders insurance experts for a chat today.
Construction works insurance – what does it cover?
Construction works or contract works insurance is nothing new to builders, it is a common requirement in building contracts and financial institutions usually stipulate that it should be held as loan security. But there is no such thing as a standard policy and builders should take particular care when arranging a policy.
Insurance for piling works – what do I need to check for?
Terms of engagement
Be sure to check the piling contractors’ terms of engagement.
When taking on projects that include piling works, builders should take particular note of some important conditions that may form part of the piler’s terms of engagement. Several clauses that regularly appear in these contracts can impose some substantial obligations on the builder, the implications of which need to be fully considered and understood.
Builders should also be aware that some of these obligations may not be covered by their public liability insurance and, if overlooked, have the potential to leave the builder exposed to possible large claim payouts.
While the standard conditions of piling contractors’ terms can vary significantly, some things to watch out for are:
- Clauses that require the builder to hold public liability insurance that covers the piling contractor’s liability for damages arising out of the performance of their works. Basically, terms making the builder responsible to take out insurance on behalf the piling contractor
- Conditions whereby the builder accepts full responsibility for any damages the piling contractor may cause
- Terms that prohibit the rights of the builder or their insurer to hold the piling contractor responsible for damage caused by them, or similar terms that prevent contribution by the piling contractor towards damage
they may cause
- General hold harmless agreements and indemnity provisions in favour of the piling contractor.
Why you should carry your own policy
With this in mind, consider the standard provisions of a public liability policy held by many builders. The policy would normally cover the liability of the insured party (the builder) and other defined persons such as their directors, employees and principals.
It would also include the liability of these insured parties, arising from the actions of subcontractors used on the job. A builder’s public liability policy, however, does not always cover a subcontractor’s own portion of liability – which, after all, is why subbies should carry their own policy.
Minimise your exposure to loss
With proper vigilance, there are a number of ways builders can limit their exposure to loss arising from onerous piling contractor’s contract clauses:
- Make sure that your public liability policy covers liabilities attributable to vibration and removal or weakening of support to surrounding property
- If you intend to accept the piling contractor’s terms and conditions of engagement, familiarise yourself with what you are signing up to. Arrange your insurance accordingly, but remember that insurance may not be the magic bullet that will pick up every condition encountered
- If the builder is effectively taking on insurance responsibility for the piling contractor, ensure that your
policy is appropriately extended
- Negotiate out or delete any disagreeable terms from the piling contractor contract
- Use Master Builders subcontract documents, which don’t include any of the imposing requirements such as those stated. Take care not to allow any amendments or reference back to the piling contractor’s terms of contract, which may activate obligations similar to those mentioned.
Master Builders Insurance Services can provide valuable assistance to builders in understanding the insurance implications of piling contractor’s terms and conditions. Email our team today!
What is a surety bond?
Building contractors are increasingly turning to surety bonds as a financing option alternative to bank guarantees and retention monies. The purchase of surety bonds from a bond provider (usually an insurance company) can deliver many benefits for business operations, such as cash flow advantages and freeing up working capital.
Trade Credit Insurance – who needs it?
If businesses sells goods or provide a service on credit terms, they are vulnerable to bad debts. This is where Trade Credit Insurance can help.
Trade Credit insurance provides cover for the nonpayment of trade debts following the debtor’s insolvency (receivership, liquidation, bankruptcy) and protracted default (the debtor isn’t formally insolvent, however a formal judgement is the minimum required). It is designed to complement and support good credit management and help the business trade with confidence.
What insurance do I need when hiring Group Training Apprentices?
Hiring apprentices through Group Training Organisations (GTO’s) is commonplace in today’s building industry and a practice strongly supported by Master Builders. Group training facilities play a vital role in cultivating future skilled workers within our industry and servicing the variable workforce needs of builders and tradies.
When using GTO apprentices, how do I meet the insurance obligations under the Host Employment contract?
As many host employment contracts place quite onerous terms on the host, it is very important to check these requirements against your insurance policies for compliance.
However, when doing so be aware that the responsibilities assigned to the host by the various GTO’s are not standard and substantial differences can occur from one GTO contract to the next. Best practice is to familiarise yourself with insurance obligations in the GTO agreements you sign, as failure to properly fulfil these terms could leave you holding the bag
for significant uninsured claims.
What are the principal issues?
As previously mentioned, insurance obligations placed on the host under GTO contracts are not the same.
The following information cannot address every issue that may be encountered, but here’s a few things to watch out for:
- Public liability insurance: The standard provisions of a public liability policy usually cover the named insured (such as your business as host), its directors, employees and principals. It is important to note that a GTO will not normally be one of the insured parties under the host’s policy. Neither would any GTO apprentices, as they are employees of the GTO and not the host.
- Apprentice's tools: The host agreement may place obligations on the host, to insure apprentice’s tools against various risks. Again, this cover may not be included under any policy the host employer may hold for their own tools, plant and machinery. Should this be the case under the contracts of the GTO’s you use, it is important to ensure that your policy will respond to the required provisions.
- WorkCover recoveries: WorkCover insurers routinely undertake actions to recover amounts paid to injured workers if a party, other than a worker’s employer, contributed to the injury. Because GTO apprentices are not employees of the host, they are not insured by the host’s WorkCover policy. They are employed by the GTO and it is the GTO’s policy that pays out for any WorkCover injuries that may occur. Consequently, make sure that your Public Liability policy covers you for WorkCover recovery actions that arise from employees of others. And if it does, check the policy excess applicable to this sort of claim as, frequently, the amount imposed can be a five figure sum.
Master Builder Platinum Protection insurance can protect you
Liability exposures on building sites for personal injury or property damage incidents are ever present risks that can involve substantial amounts of money. Properly arranged insurance can remove or reduce many of these exposures and makes this is a necessary function of safeguarding your business.
Master Builder Platinum Protection includes the following additional public liability policy provisions, which automatically apply when engaging GTO apprentices:
- Inclusion of a GTO as an insured party, if required to do so by contract
- Inclusion of a GTO apprentice as an insured party, if required to do so by contract
- Inclusion of apprentices tools, if required to do so by contract but subject to the type of coverage you have
taken out for your own tools
- Inclusion of cover for WorkCover recovery actions arising from claims paid to employees of others, including by WorkCover for GTO apprentices, should such a claim be made against you.
Learn more about Master Builder Platinum Protection insurance or contact our specialist insurance team for a chat today!
Workers Compensation Insurance - how do I get cover?
Workers Compensation is a compulsory cover for all employers in each state of Australia.
It covers employers from claims and legal costs incurred from the death, injury or illness of employees and deemed workers under various workers compensation legislations around Australia.
To find out more, or to arrange Workers Compensation Insurance, please contact the following:
New South Wales
Agent: CGU Workers Compensation
Return to Work SA
Ph: 13 10 10
Ph: 13 10 10
Ph: 13 10 10
Ph: 13 10 10