Since the 2014 Lacrosse building fire in Melbourne, there has been heated debate, publicity and extensive enquiries with respect to non-compliant Aluminium Composite Panels (ACPs) in strata property developments. The notorious Grenfell Tower fire in London, 2017 perpetuated this further, sending authorities and occupants of multi-level buildings into a panicked frenzy. Despite many serious fires, little to no action had been taken to regulate the use of this hazardous product, not least mitigate the risk its presence poses to human life.
The below FAQs provide an update on key issues Strata Mangers may be grappling with as a result of a property portfolio containing buildings with non-compliant cladding.
- What is illegal aluminium cladding?
- What are the latest regulatory developments with respect to illegal cladding?
- How are insurers responding to buildings with cladding?
- Does the percentage of combustible cladding change how an insurer responds to the risk?
- What role do fire safety engineers play when it comes to illegal cladding?
- What is Resolute doing to make life easier for Strata Managers and their Owners Corporation Committees?
- What can Strata Managers do to make insurance management for buildings with non-compliant cladding as pain free as possible?
1. What is illegal aluminium cladding?
Aluminium Composite Panels (ACPs), more widely referred to as ‘aluminium cladding’, are generally composed of two aluminium panels bonded to a core of either polyethylene or polyurethane.
While some cores are constructed with a mixture of polyethylene (PE) and fire retardant materials, many use 50% – 100% PE – a highly combustible material. A PE-fuelled fire can cause bonded aluminium panels to melt, igniting adjoining panels in what can quickly become a devastating blaze that rapidly progresses over a building’s façade.
ACPs tend to come in four general categories as defined by their core material:
- 50%-100% Polyethylene (PE, EVA Ethylene-vinyl acetate) – These are considered the problem material.
- 30% PE and 70% inert materials – Generally identified as FR (Fire Rated) they tend to be inert materials, typically mineral compounds.
- 7% PE and 93% inert materials – These are deemed almost ‘non-combustible’
- 0% PE – an aluminium honeycomb or similar core categorised as being close to non-combustible.
2. What are the latest regulatory developments with respect to illegal cladding?
a) A new formal protocol for the assessment of all aluminium cladding
The Insurance Council of Australia (ICA) and insurers have agreed upon a new protocol to help identify the risks presented by various types of aluminium composite panels (ACPs). The Residual Hazard Identification Protocol (RHIP) is designed to identify whether particular types of aluminium cladding should be used in construction, and also to provide a consistent risk assessment methodology for builders and underwriters where ACP are thought to be present.
b) New Ministerial Guidelines – Banning the use of non-compliant materials
On the 13th of March, 2018, the Victorian Government released new Ministerial Guidelines concerning the use of ACPs for multi-storey buildings in Victoria. The guidelines have been set in order to ban the use of these products, with harsh penalties in place for builders and suppliers who fail to adhere.
The guidelines, aimed specifically at municipal and private building surveyors, state that building surveyors should not be satisfied that any ACPs to be used as an external wall fitting will be automatically compliant with the Building Act and Regulations.
Compliance of the ACP product must be assessed and determined by the Building Appeals Board to ensure that it is in line with the Building Act and Regulations. These guidelines have been in effect from 22nd March 2018 (ii).
It is expected that Ministerial Guidelines such as those set by the Victorian Government, will soon follow in other Australian states and territories.
c) Action from the Victorian Building Authority
Referencing the new Ministerial Guidelines above, the Victorian Building Authority (VBA) has issued product safety alerts to building practitioners regarding the use of ACPs and the risk they pose to life and property (iii).
The VBA is currently working to ensure all practitioners have a greater understanding of the National Construction Codes (NCCs) and building legislation, ensuring the new laws are taken seriously. With a significant increase to their existing compliance and enforcement jurisdiction, the VBA is now in a position to impose higher fines and penalties for practitioners who fail to adhere to new regulations – up to $400,000 and in extreme cases, imprisonment. (iv)
d) The Victorian Cladding Taskforce Audit
On the 3rd of July 2017, the Victorian Government established the Victorian Cladding Taskforce to investigate the extent of non-compliant external wall cladding on buildings in Victoria, and to make recommendations for improvements.
Findings indicated a variety of issues;
- supply and marketing of inappropriate materials
- a lack of compliance within the building industry
- inadequacies in the current regulatory system which failed to deal with issues presented by combustible cladding.
Measures are now in place to prevent the use of ACPs with a polyethylene core of more than 30%, and expanded polystyrene (EPS) for particular classes of residential and commercial construction. These new regulations will be in effect until new, improved testing systems and standards are in place.
As part of the long-term reform, it has been recommended that a statutory ‘duty of care’ be applied to building practitioners to ensure they exercise due responsibility to protect occupants in the residential and commercial strata sector.
3. How are insurers responding to buildings with cladding?
Resolute consulted Simon Ingham, General Manager | Strata Unit Underwriters (SUU) to provide information on their approach when it comes to illegal cladding. Simon explained SUU’s position below:
“SUU’s response to existing customers is to continue to provide coverage support for those Owners Corporations that have (or may have) a combustible cladding exposure. The purpose of this approach is to promote stability in the Strata Insurance market while the community works its way through the issue. Where Owners Corporations are being proactive in managing and mitigating their combustible cladding exposure, SUU will continue to support the provision of ongoing insurance.
“To ensure SUU can better understand the risk exposure within the insurance portfolio, we will ask more extensive and specific questions regarding the presence and use of combustible cladding materials on insured property.
“In order to take into account the increased risk exposure that is identified within the insurance portfolio as a result of the combustible cladding, SUU will apply additional premiums that relate specifically to the fire risk component of the overall premium charged to Owners Corporations. We currently are not seeking to apply increased excesses or special conditions for properties with this exposure.
“For Owners Corporations that are currently insured with other insurance providers but are seeking insurance quotations from SUU, we will take a more cautious approach, with more restricted underwriting acceptance guidelines as we seek to avoid expanding our portfolio exposure to combustible cladding. Owners Corporation properties with high combustible cladding exposures that are not currently insured with SUU will fall outside our quotation appetite.
“SUU will continue to evolve and refine our approach on this matter into the future to ensure that the interests of our customers, our shareholders and the strata community in general are balanced appropriately.”
4. Does the percentage of combustible cladding change how an insurer responds to the risk?
Simon Ingham, General Manager | SUU also provided the response below in accordance with SUU’s approach.
“Yes – the extent of combustible cladding usage on a building has a direct correlation with the risk exposure, and therefore this is a fundamental piece of information when assessing the risk. As well as percentage of use, other factors of significant importance include:
- specific material used
- the way in which the cladding has been applied (i.e. vertical vs horizontal) and,
- the fire safety controls present (i.e. sprinkler systems).”
5. What role do fire safety engineers play when it comes to illegal cladding?
Fire Safety Engineers have been engaged by parties such as the VBA, Owners Corporations, and Councils to conduct audits on a case-by-case basis for buildings where cladding is present.
Evaluation of the exposure in each building with ACPs must be conducted by competent fire protection professionals, like fire safety engineers, to evaluate the most critical exposures, and make key recommendations to help ensure safety to life and building code compliance.
A Fire Safety Engineer’s / Building Surveyor’s cladding audit generally aims to address the following:
a) Identification of the type of cladding used in the construction of the building
In cases where there is no documentation, or a lack of information to confirm the type of ACP installed; it is necessary for samples of the ACP, along with insulation materials behind any ACP, to be tested to clearly identify the composition and combustibility of the materials. A visual examination or a small flame test is not adequate for identification purposes.
b) The extent to which cladding has been used throughout the building
Where are the ACPs located? How much has been used throughout the building?
c) Key actionable recommendations to building owners in order to:
- Reduce the risk posed to the building occupants to ensure their safety
- Minimise the risk of damage to the building in a fire – this will assist in minimising insurance premiums and excesses
- Bring the building in line with Australian building regulations
6. What is Resolute doing to make life easier for Strata Managers and their Owners Corporation Committees?
Alina Lucaciu, Resolute Operations Manager has provided some insights on what Resolute are doing to ensure the presence of cladding has minimal impact for your clients.
a) Identifying ‘at risk’ buildings:
- Resolute are identifying properties within our insurance portfolio we believe are at risk of having non-compliant cladding, and are advising all relevant parties
- We are also requesting that Strata Managers to advise us of buildings they believe have non-compliant cladding.
b) Minimising the impact on Strata Insurance
- Resolute are working collaboratively with insurers to conduct onsite inspections of properties with potential cladding issues.
- For buildings in question, Resolute Account Managers are advising Strata Managers of the insurer’s requirements that must be met in order for them to renew the insurance.
- The Resolute team work with Strata Managers and OC Committee’s to collect all relevant information for upcoming policy renewals.
- Resolute negotiate insurance premium terms with the holding insurer and other providers within the market to ensure the OC are adequately covered in the event of a loss.
- Resolute are continually developing new and relevant educational material for affected Strata Managers and OC’s within the industry.
7. What can Strata Managers do to make insurance management for buildings with non-compliant cladding as pain free as possible?
- Identify buildings within your property portfolio that may have cladding issues, or that you are aware have cladding present.
- Engage a fire safety engineer to undertake a risk report identifying the precise cladding materials used and the extent of use throughout the building.
- If you become aware of the presence of non-compliant cladding, it is essential that you advise the insurer or your insurance broker immediately – it is your Duty of Disclosure as part of the Insurance Contracts Act 1984.
Before entering into a contract of general insurance with an insurer, the OC has a duty to disclose to the insurer every matter that they know, or could reasonably be expected to know, is relevant to the insurer’s decision whether to accept the risk of the insurance and, if so, on what terms. The OC has the same duty to disclose those matters to the insurer before they renew, extend, vary or reinstate a contract of general insurance.Providing the insurer or insurance broker with ample notice will aid in ensuring appropriate insurance cover can be maintained in the event the building is classified as a high-risk case of non-compliant cladding.
- Consider key recommendations handed down by the fire engineer, and inform the OC Committee. This will allow the OC to take the actions necessary to mitigate the risk and bring the strata building in line with the building code.
- Follow the Fire Engineer’s recommendations by setting and implementing an action plan. When it comes to the insurance renewal, insurers will look more favourably upon OC Committees who are proactive in taking steps to reduce the risk posed by non-compliant cladding.
For any questions or additional concerns regarding properties with non-compliant cladding, please get in touch with your Resolute Insurance Account Manager on 1300 668 033.