NSW builders face delay on indemnity insurance rules

New South Wales lawmakers are considering a 12-month delay to mandatory Professional Indemnity insurance requirements for registered builders.

The proposed amendment would move the start date under the Design and Building Practitioners Act 2021 from July 1, 2026, to July 1, 2027. The bill is before the state parliament amid concerns that many sole traders may not be ready for the original deadline.

Under the requirement, registered building practitioners would need to hold adequate Professional Indemnity insurance for liabilities arising from their work. A delay would give builders more time to assess what cover they need and whether their existing arrangements are sufficient.

Professional Indemnity insurance generally covers third-party losses and legal defence costs linked to alleged or actual negligence in professional services or advice. For builders, that can include claims related to documentation errors, compliance declarations, approval issues, advice that causes financial loss, compensation costs, and loss of or damage to documents.

Industry attention has focused not only on the proposed insurance mandate but also on broader obligations under the state's building regime. A key feature of the Act is a statutory duty of care that applies to professionals involved in construction work.

"If the change goes ahead, many registered building practitioners in NSW will need to hold an adequate level of Professional Indemnity insurance for liabilities that could arise from the work they carry out," said Daniel Quinn, Head of Customer Acquisition at BizCover.

Insurance brokers and comparison platforms are urging builders not to treat a possible postponement as grounds for delaying planning. A late rush could leave smaller operators scrambling to understand their obligations and secure cover.

"The earlier builders start planning, the more time they have to compare options and make informed decisions about protecting their business. Builders who leave it to the last minute could find themselves under pressure to understand their obligations and arrange appropriate cover," Quinn said.

The possible reprieve is particularly relevant for sole traders and smaller firms, which may have less administrative support and fewer established insurance arrangements than larger contractors. A 12-month extension would give those businesses more time to review the market, seek advice, and budget for any added insurance costs.

Duty of care

The statutory duty of care in the legislation has heightened the significance of the insurance debate. Under the framework, claims can be brought years after construction work is completed, extending the period in which practitioners may face legal exposure.

"It's important to note that this duty of care applies retrospectively, because claims can be brought up to 10 years after the work is completed," Quinn said.

That retrospective element has sharpened the focus on record-keeping, compliance processes, and professional advice provided during projects. Builders working across the design, certification, and delivery stages can face disputes stemming from decisions made long before a defect or loss is identified.

Quinn said the growing complexity of construction projects was increasing practitioners' risk exposure. Stricter compliance requirements and heavier reliance on accurate documentation at all stages of a build have made insurance arrangements a more pressing issue for many operators.

Market impact

The debate over timing also points to broader strains in the insurance market for construction professionals. Mandatory cover can improve consumer protection and clarify minimum standards, but it can also create pressure if parts of the sector are slow to adapt or if builders struggle to find suitable policies at an acceptable price.

BizCover offers Professional Indemnity policies for eligible registered building practitioners with limits ranging from AUD $250,000 to AUD $10 million. More than 300,000 businesses use its platform, and one in 10 insured Australian businesses use the service to compare and purchase cover online.

For builders in New South Wales, the immediate issue is whether parliament approves the proposed deferral. If it does, the change would remove the imminent deadline but leave the underlying requirement intact, giving registered practitioners a limited window to prepare before the rules take effect.