Defect Insurance Reform Moves From Policy Ambition to Market Test

For readers following Victoria’s earlier shift on apartment defect cover, the latest development is an important extension. Victoria has now passed legislation allowing developers of apartment buildings above three storeys to use decennial insurance as an alternative to a developer bond. In New South Wales, decennial liability insurance is already part of the reform agenda, with further changes before Parliament that may broaden the defect trigger from serious defects to a wider category of relevant defects.

The appeal is clear. A 10-year, first-resort policy for significant building defects could provide owners corporations and purchasers with a more durable safety net than short-term bond arrangements. For reputable builders and developers, it may also become a way to demonstrate quality, governance and project discipline before handover.

However, the key issue for the construction sector is availability. Some market participants argue that the cover governments envisage is not yet widely approved or commercially settled. Others say products have evolved to include the elements regulators are focused on, including structure, waterproofing, fire safety and essential building services. That difference of opinion matters because developers cannot plan confidently around a reform if the pathway to compliant cover remains uncertain.

For construction businesses, the practical response should be early preparation rather than waiting for final regulatory certainty. Project teams should review design documentation, consultant appointments, quality assurance procedures, subcontractor controls and records management. Insurers offering long-tail defect cover will not only assess the finished building; they are likely to scrutinise the whole construction process, including how risks were identified, corrected and evidenced.

The reform also reinforces the growing overlap between brokers, legal advisers, certifiers, designers and project managers. Decennial-style cover is not simply another line item in the insurance schedule. It can affect feasibility, funding discussions, contract drafting, sales strategy and settlement expectations.

Builders and developers should also consider how this interacts with existing construction business insurance, professional indemnity, contract works insurance and public liability arrangements. A defect policy may respond differently from these covers, and gaps can emerge if responsibilities are assumed rather than mapped.

The direction of travel is clear: apartment quality and insurability are becoming inseparable. Whether NSW and Victoria move quickly or cautiously from here, businesses that can show strong quality systems, transparent records and suitable cover options will be better placed to compete as defect insurance reform becomes a commercial reality.