Insurance and Strata Information

How Does Your Cladding Affect Your Premiums?

Buildings with combustible materials can significantly affect your insurance.

Whether building in rural or urban areas, on high rise residential or commercial buildings or on freestanding homes in bushfire areas, it is important to understand how your choice of building materials may affect premiums and policies.

The two highest-risk forms of combustible cladding are:

Aluminium Composite Panels (ACPs) with a polyethylene core
Expanded Polystyrene (EPS) panels

Because of the deadly fires caused by these types of cladding, insurance policies for buildings with cladding have changed recently. With strata insurance and professional indemnity insurance being impacted, this has caused what some people have termed the ‘cladding insurance crisis.’

Other cladding materials, such as timber or wood-plastic composites, may be a lower risk but still may be excluded from insurance policies on some building, as they are still combustible.

Sources:

The Senate Economics References Committee, 2017. Non-Conforming Building Products: Interim Report: Aluminium Composite Cladding. Commonwealth of Australia, Australia.

Read more about our fire safety compliance

How Does Combustible Cladding Impact Strata Insurance?

Combustible cladding fires have changed the way we look at building fires. Because combustible cladding can contribute to blazes that spread up the outside of a building, and are more difficult to contain, strata insurers consider buildings with flammable cladding ‘risky’ to insure.

Since the Grenfell fire in the UK in 2017, changes to strata insurance renewals have meant that homeowners in apartment buildings saw their excesses increase significantly. Some homeowners have found their insurers applying a ‘combustible cladding excess’ of over $100 000 to their buildings – even if the cladding used on the building was not combustible. In some cases, even a letter from the building developer claiming the building has no combustible materials and presents no undue fire risk is not enough to escape the devastatingly high excess premiums. Some strata insurance companies are also imposing insurance cover exclusions to buildings with cladding, or refusing to provide strata insurance to buildings with cladding at all.

To avoid paying high excesses for cladding, you will need to provide your strata insurer with:

A copy of the building plans with the clad areas labelled
What percentage of your building has cladding on it
Details on how the cladding has been installed
The type of cladding used
Whether your property has sprinklers and where they are installed
Info on any commercial tenants in the building
Info on any monitored detection of common areas

Some strata insurers are satisfied if cladding products are compliant with Australian Standard AS 1530.1.

Sources:

Branko Miletic, 2019. Insurance Crisis Hits Australian Construction Hard. Architecture and Design, Australia.

Look Up Strata, 2018.VIC: How to Avoid Combustible Cladding Excess in Your Insurance Renewal. LookUpStrata, Australia.

CRM Brokers, 2020. Regulation for Cladding. CRM Brokers, Australia.

More on fire safety building standards

How is bushfire home insurance affected by cladding?

For houses built in bushfire zones, it is important to ensure bushfire home insurance cover is enough to completely rebuild if necessary. Buildings made from combustible materials such as timber cladding may not be fully covered under bushfire insurance premiums and insurance payouts for these buildings may not be enough to rebuild after a devastating fire.

Australian Standard AS 3959 outlines the requirements for building in bushfire zones, dividing different bushfire prone areas into different BAL ratings. The higher the BAL rating, the higher the insurance premiums on that building and the stricter the building requirements on what materials can be used – including cladding. Buildings with combustible cladding in high-risk areas, such as BAL 40 or BAL FZ may not be covered under bushfire insurance premiums. Even buildings with bushfire-resisting timbers in BAL 40 or BAL FZ are not covered, as these BAL ratings require non-combustible materials only.

Source: Elizabeth Evatt Community Legal Centre, 2015. Bushfires and Insurance- What You Need to Know. EELC, Blue Mountains and Lithgow , Australia.