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Interview – Radio National Breakfast with Fran Kelly

16 July 2019

Fran Kelly

Subject: Building Ministers’ Forum, building industry confidence, cladding audits


Minister for Industry, Science and Technology Karen Andrews was interviewed on ABC Radio National Breakfast by Fran Kelly.

Fran Kelly: Well the states and territories are under renewed pressure to try and work together and overcome a crisis of confidence in the building industry. The Federal Government concedes it's already slowing down the broader economy. The recent evacuation of three Sydney apartment towers due to building cracks and safety fears over combustible cladding across other parts of the country, have made it much more difficult for certifiers and surveyors to obtain indemnity insurance. And as we heard before seven, this has sparked deep alarm that construction industry is grinding to halt.


Denita Wawn: We’re seeing a compounding of issues of no insurance, or insurance with significant exclusions and significant increases in excess coverage. And when you compound that with claims, it then means that the insurance is either way too expensive or that insurers are walking away.

[End of excerpt]

Fran Kelly: That's Denita Wawn from the Master Builders of Australia, speaking to us earlier. Karen Andrews is the Federal Industry Minister, and she will propose a national taskforce to harmonise regulations when she calls the state and federal building ministers around the table on Thursday. Minister, welcome back to Breakfast.

Karen Andrews: Good morning, Fran.

Fran Kelly: The building industry contributes about 7 per cent to GDP every year; it’s vital to our economy. Can we afford to let this crisis drag on without resolution?

Karen Andrews: Well clearly the issues are coming to a head now. They’re long standing issue, states and territories have been well aware of them. We've had the building confidence report that talks about systemic problems with the building and construction industry - these need to be resolved. We're seeing some movement from New South Wales and Victoria now where they're really stepping up and starting to address the issue so that's good. We need the other states to come on board as well, and we do need national consistency. But that's up to the states. There has been nothing that has prevented the states from working together to harmonise building regulations, but they have shown little to no interest in doing so.

Fran Kelly: Okay. So to say it’s up to the states might be true, constitutionally, no doubt about it, but the industry is looking to you for leadership. What will you do on Thursday when you have the state and territory ministers around the table, other than to try again to set up a national taskforce which has previously been rejected?

Karen Andrews: Well there's two parts to the meeting on Thursday. The first part will be with industry stakeholders, and they will have the opportunity to put their concerns directly to the state and territory building ministers. And they will be looking for commitments from their state and territory ministers, I'm sure, to harmonise across all of the states. So I expect Denita Wawn, for example, to be out very strongly at that industry round table, making it very clear that they're looking for harmonisation across the states. I will take that up with the building ministers. And yes, I did propose that the Federal Government would fund a task force that would work with the states and territories to assist with a common outcome. That was rejected. I will put that again on Thursday. I hope it's not rejected. But quite frankly, the states, it's really up to them to show more of a willingness to work together and to cooperate.

Fran Kelly: Let's talk about the problems because there are two clear problems now, and there may be more, but two major ones: insurance and cladding and they're related. Let's go to insurance first. The recent spate of apartment block defects have made it difficult for certifiers to get indemnity insurance. One private certifier in the newspapers today - Urban City Consulting in Sydney - has said its premiums have gone from $18,000 12 months ago to $220,000 for this year's renewal. This is insurers trying to cover the cost of big damages claims which can run into the millions. In your view, is this gouging or risk management by the insurers?

Karen Andrews: At this point in time, insurers are clearly managing a risk. So the risk profile has changed their concerns about their liability. What I don't think is excusable though is, for many years, insurers have taken the premiums, they've pocketed that and now when the risk profile changes, they're in there protecting their own interests.

Fran Kelly: Well that’s their job, that's their job. So what can you do about this?

Karen Andrews: Well, try and work with the states to manage the reasons for that escalation in risk. All roads lead back to this being a state and territory issue of non-compliance and lack of enforcement with their state building regulations. Now, if that had been managed properly, if the regulations had been enforced and they had been compliant, insurers would be most likely not looking at a higher level of risk and a higher level of premiums. So the state cannot walk away from their role in the escalation of the premiums. They have to convince the insurers that they are taking appropriate action and that the risk is going to be lower.

Fran Kelly: Okay. So you don't plan to take any leadership here with the insurance industry? You're not going to sit down with the insurance companies to try and convince them to take on the risk without bumping up their premiums or you know?

Karen Andrews: I’ve had some discussions with insurers. But let's be clear that leadership is not just stepping in and trying to solve a problem which the states and the territories have created for themselves. Leadership in this instance is bringing the parties together to try and nut out a solution because whilst it's been staring them in the face, the states and territories have not picked up and taken the action that's necessary.

Fran Kelly: One temporary solution that a few of the states have brought in is to exclude cladding from insurance policies, that’s happened in New South Wales, Victoria and I think Queensland, providing some relief, but it means the certifiers aren’t covered for combustible cladding and other non-conforming building products. Leaves them pretty exposed. As the Federal Minister, are you happy with that?

Karen Andrews: Well, as you very rightly said, this is a temporary measure and it was a step that some states and territories have taken.

Fran Kelly: But it's meaningless isn’t it, and leaves people exposed?

Karen Andrews: It depends potentially on the work that the certifiers are doing because there would be some sort of certifiers that don't work on high rise properties. So for them, they're potentially being penalised when they're not doing any cladding work anyway which is what the insurers have identified as a significant risk. So there are opportunities for the states and territories to negotiate some outcomes, but it is only a short term fix. So it resolves the current issue in part but it doesn't set the industry up well. Until the issues of non-compliance and enforcement of building regulations is dealt with by the states, we will not come through the current building confidence crisis.

Fran Kelly: In the meantime, in the short term, is there any sense the Commonwealth could, you know, regulate the insurance sector, anything like that?

Karen Andrews: It's not a regulation issue, it's a risk issue and the risk is there because of non-compliance and lack of enforcement with state and territory building regulations.

Fran Kelly: Okay. Let's go to the compliance. You’re listening to RN Breakfast. It’s 16 to eight. Our guest is the Federal Industry Minister Karen Andrews. The insurance crisis started with the widespread use of combustible cladding, it's a problem across the country. Victoria has undertaken a comprehensive audit of its high rise building. The industry - we heard Denita Wawn earlier calling on all states to carry out these comprehensive orders. Are they dragging their heels and what can you do about that?

Karen Andrews: Look, I would have preferred greater progress on the status of audits. The states and territories have chosen to conduct their audit in somewhat different ways …

Fran Kelly: … In slow motion.

Karen Andrews: Well, in slow motion and also in different ways. So there has been - there has been considerable action and my understanding and I'll clarify this on Thursday is that most states and territories have identified where they have a high risk. But the audits are not yet complete at this stage. I'll be pressing the states and territories for a timeline to get those audits completed.

Fran Kelly: And what about the sticky problem of cost rectification? The states yesterday undertake the audit, but then there's the cost. Victoria has just announced it will pay for combustible cladding to be removed from all privately owned buildings. No other state has done that, should they?

Karen Andrews: I think that the action that’s being reported that Victoria has taken is a very positive step and I would encourage states to look at that. I'll be asking the Victorian Minister to provide me with more details of that; I intend to meet with him prior to the Building Ministers’ Forum just to understand exactly what is being proposed and is being put on the table in Victoria. But I congratulate Victoria for moving on this issue and coming up with a solution.

Fran Kelly: The industry is warning that construction is grinding to a halt, that the building sector itself could be on the brink of collapse. Is there any chance that you will come to this meeting on Thursday with some kind of cheque? Will the Commonwealth be prepared to chip in to help pay for repairs, the rectification of combustible cladding?

Karen Andrews: The Commonwealth is not an ATM for the states. So no, this problem is of the states’ making and they need to step up and fix the problem and dig into their own pockets.

Fran Kelly: So the construction sector wants the Commonwealth to take the lead when it comes to reforming the sector. You're leaving the audit up to the states, you’re leaving the cost of rectification up to the states, you're leaving the states to get their regulations in order to ameliorate the risks so the insurance problem will be fixed. What are you going to do? What are you doing?

Karen Andrews: Well, we're bringing them all together. We're putting them in the same room as industry so that they can listen to what industry is saying. Quite frankly, industry has been saying that it is a state issue for a number of years. It is clearly a state issue and they are the ones that need to be able to fix this. I'm happy to facilitate, I've made offers in relation to a task force to coordinate the implementation of a report that was commissioned now a couple of years ago, where the implementation is quite tardy and it's not uniform across the states. So that's on the table. I'll continue to put that on the table but what I'm not going to do is take over responsibility for an issue that has been created through non-compliance and a lack of enforcement in the building sector. That would be wrong.

Fran Kelly: Minister, your Government, the Morrison Government, the Prime Minister himself is on a red tape congestion-busting mission - that was one of his first orders to public servants. Here you are urging the states to bring in more regulation. Do you concede now that it was stripping away red tape, allowing self-certification in a whole lot of sectors that’s got us to this problem, that there is a place for red tape?

Karen Andrews: I'm not asking the states to bring in more regulation. I’m saying…

Fran Kelly: … Yes, you are.

Karen Andrews: No. I'm not.

Fran Kelly: There’s more certification required under the Shergold-Weir recommendations.

Karen Andrews: The Shergold-Weir report talked very clearly about there being enforcement and compliance issues in the sector and that's what the issue has been. There are already regulations in place and quite frankly, we would not be facing this crisis in confidence if there had been proper compliance and proper regulation in that sector.

So that's what is the important thing to be really clear on. So I want the states to comply with their own regulations, to comply with the national construction code and enforce that compliance. And if they did that, they would go a long way to resolving the crisis in confidence that currently exists in the building sector.

Fran Kelly: Minister, thank you very much for joining us.

Karen Andrews: It's a pleasure.

Fran Kelly: Karen Andrews is the Minister for Industry, Science and Technology. You're listening to RN Breakfast.