Could a building material shortage affect your insurance cover?

The current construction boom could not have been anticipated by many. In fact, early last year, some builders and tradies were expecting a market crash. Although no one would complain about any industry thriving in today’s economic climate, the sudden increase in demand has coincided with supply constraints in various building materials, leading to significantly higher prices, as well as delays in many construction projects. Such delays can have an impact on insurance cover under Construction Works Insurance due to non-attendance. Let’s take a look at how….

Unprecedented demand and constrained supply

The building material shortage has come about due to several factors linked to COVID-19. Although the Federal government’s Homebuilder scheme provided a much-needed boost to construction, it was not enough to prevent the building supply constraints. As Australia’s construction industry relies on both imported and domestically produced materials like timber, the logistical bottlenecks caused by COVID-19 have affected supply of imports, resulting in an overall shortage in timber and other materials. Unfortunately, increases in domestic production of said materials have not been able to meet this increase in demand. The combination of a sudden rise in demand, and reduced supply have presented a substantial challenge for many builders, impacting their ability to complete their projects within the specified time frame.

What does this building materials shortage mean for Construction Works Insurance?

When delays are experienced in construction projects due to supply constraints or other factors, it’s not uncommon for builders to not attend sites for prolonged periods of time, but this may impact cover under Construction Works (Contract Works) Insurance. How can this affect coverage? Construction Works Insurance policies typically contain a ‘cessation of works’ clause, which excludes cover when the site has not been attended for an extended period of time. The standard cessation of works period for Construction Works Insurance is 60 days, meaning if the site has been unattended for over 60 days, cover is likely to be impacted. After this time, if a builder is still unable to attend, the insurer must be notified, and the insurer may choose to extend the cover. If the insurer is not notified, coverage will be compromised.

In addition, the building materials shortage has led to some builders reverse building to complete projects on time. For example, some builders have been completing plasterwork and internal fixings prior to external cladding being completed. Under Construction Works Insurance, you are required to take reasonable care in the methods you use. In this case, for example, if storm damage occurs to internal works due to the lack of cladding, this may be seen as you not having taken reasonable care in your work, and may be used as a basis for an insurer to not provide coverage. Therefore, before using any alternative construction methods, it’s a good idea to get in touch with your broker to avoid any surprises if you need to make a claim.

If you haven't heard from your broker...

If your projects have been affected by a materials shortage, and your insurance broker has not yet contacted you, it is a good idea for you to get in touch with your broker to clarify whether your cover has been impacted. For example, if a natural disaster causes damage to your site or someone visits your site unattended and injures themselves, and your cover is compromised due to you not attending your site, you may be required to cover all costs associated out of your own pocket. HIA Insurance Services recommends builders contact their insurance broker and check the cessation of works exclusion period. If you need to request an extension, your broker can walk you through the process.

How can HIA Insurance Services help?

As experts in insurance for the construction sector, our brokers are dedicated to helping builders and tradies feel confident their livelihood is protected. As brokers, we live and breathe your industry, and have spent many years learning the ins and outs of insurance for the construction sector. So if you currently do not have your Contract Works Insurance arranged through HIA Insurance Services, talk to an expert today and find out how we can help.


David Turner

Chairman, HIA Insurance Services

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