We have received Member feedback about the challenges Valuer Members are facing with renewing PII policies as well as significant increases in premium.
We have listened to the feedback and for the past 6 months we have been in discussions with CoreLogic and Michael Wood at Woodina, discussing the following common PII endorsements:
- Non-Bank Lender LVR provisions; and
- Development valuations.
The API has had productive negotiations with Woodina, which have culminated in Woodina recently advising relevant insureds of the following new PII endorsements.
Woodina Non-Bank Lender Classification
CoreLogic has facilitated introductions to Woodina of a number of non-bank lenders, such as Pepper, Resimac, La Trobe, Liberty, Bluestone and First Mac. These lenders have satisfied Woodina as to the strength of their balance sheets and their risk management lending practices. Woodina is now treating these particular non-bank lenders similar to banks, building societies and credit unions. These lenders are classified as “Tier A Non-Bank Lenders’’.
Relaxation of Common Non-Bank Lender Clause From 1 June 2021
Although each Woodina insured’s circumstances are considered on their own, the following relaxation has been applied by Woodina to most insureds who previously had the general exclusion or 70% LVR cap applied to Non-bank lenders;
- The policy will cover any claim (as defined in the policy) brought by a Tier A Non-Bank Lender (Pepper, Resimac, La Trobe, Liberty, Bluestone and First Mac) arising from a residential mortgage valuation provided by the insured to a Tier A Non-Bank Lender prior to 1 June 2021 without any LVR restriction.
- The policy will cover any claim brought by a Tier A Non-bank lender arising from a residential mortgage valuation up to $3.5m or a commercial building mortgage valuation up to $5m, provided by the insured to such Tier A Non-Bank Lender after 1 June 2021, without any LVR restriction.
- The policy will cover any claim brought by a Tier A Non-bank lender arising from a residential mortgage valuation over $3.5m or a commercial building mortgage valuation over $5m, provided to such lender after 1 June 2021, only if the LVR based on the insured’s valuation and relied upon by the Non-bank lender at the time of granting the loan, was not greater than 70%.
Remaining Non-Bank Lenders (Tier B Non-Bank Lenders) 70% LVR Cap
Other Non-bank lenders will be subject to the current clause, with the 70% LVR cap.
Woodina’s position with respect to these Tier B Non-bank lenders will be tightened on renewal so that there will be no cover for valuations over $1.5m and the limit of indemnity will be $1m per claim with one reinstatement (thus $2m in the aggregate). Woodina will consider submissions on renewal in respect of retrospective exposure.
Woodina still views development valuation work as high risk. However, they have recently applied their more relaxed stance in respect of Tier A Non-bank lenders in their new Development Restrictions policy endorsement, applicable on renewal where a Woodina insured previously had a general development exclusion or 65% development LVR cap:
This Policy will not cover any Claim arising from a development valuation;
- provided to a Non-bank lender, not being Pepper, Resimac, La Trobe, Liberty, Bluestone or First Mac (Tier B Non-bank lenders); or
- provided to Pepper, Resimac, La Trobe, Liberty, Bluestone or First Mac (Tier A Non-bank lenders), involving a valuation over $2m or where the Loan to Valuation Ratio (LVR) applied by the Tier A Non-bank lender in agreeing the loan on an “as if complete” basis was greater than 65%; or provided to a bank, building society or credit union after the inception of this Policy and where the LVR applied by the bank, building society or credit union in agreeing the loan on an “as if complete” basis was greater than 65%.
A development valuation means a valuation of:
- vacant land assessed on the basis of its use as a development site;
- an improved property on land where the improvements are to be demolished and then the land redeveloped;
provided that this definition does not include developments of a single dwelling or two dwellings on a single certificate of title.
For the sake of clarity, a development valuation for the purposes of this clause is for construction finance purposes, development funding purposes or other lending arrangements specifically for the purpose of financing the project (including a developer raising funds from potential investors). It does not include a valuation of a property for the purpose of pre-sale, compensation, family law, rating and taxing, municipal, financial reporting, capital gains tax or estate advice.
The Limit of Indemnity under this Policy in respect of all Claims arising from such indemnified development valuations is $1,000,000 any one Claim (and $2,000,000 in all) during the Period of Insurance.
We and the Insured agree that past valuations which do not satisfy the preceding requirements of this endorsement will not be covered by this Policy even though there may be no causal connection between the loss of the subject of the Claim and the amount of the loan or the LVR applied by the lender.
- The Development Valuation definition in the endorsement is a Woodina definition (not IVS definition).
- This definition of Development Valuations does not include developments of a single dwelling or two dwellings on a single certificate of title. This typically means there is unrestricted cover for developments involving one or two dwellings on a single certificate of title (though each firm’s overall exposure is assessed individually).
- The previous Development LVR Cap clause (as opposed to the complete development exclusion for some insureds) applied the 65% LVR cap to all lenders. Woodina is now separating out the Tier A Non-bank lenders on renewals:
- Tier A Non-bank lender development valuations are covered up to a cap of $2m, but are still subject to a 65% LVR cap and now a $1m/$2m (in the aggregate) sublimit on all development claims in the insurance period, because of serious concern about this area.
- No cover at all for Tier B Non-bank lender Development Valuations, past or future, though Woodina will consider submissions on past exposure.
Valuers on ValEx Panels
We have confirmation from Woodina that the Tier A Non-bank lender changes apply to all valuations prior to the inception of this change as of 1 June and such cover is without any LVR applicable. There is, therefore, no requirement for Tier A Non-bank lenders to revalue past valuations prior to 1 June 2021 involving Woodina insureds with these PII clauses and all parties have agreed valuers need not be considered for removal from panels for non-compliance with Woodina PI conditions by Tier A Non-bank lenders.
One possible extra change is that Woodina is currently considering a submission by Columbus Capital to be treated as a Tier A Non-bank lender. If that addition is made, it will be made on renewal of any relevant insured’s policies, though urgent requests will be considered by Woodina.
Policies Changes and Your Broker and Woodina Endorsements
Woodina has advised those of its insureds who had the Non-bank lender exclusion or LVR cap about the new endorsements. A Member should consult their broker for advice to double-check that the cover is no less than under their existing Woodina policy.
For any new policies containing these endorsements, and any tightening of cover on renewals, the suitability of these endorsements will depend upon the specific circumstances of each Member’s business. We recommend that you obtain advice from your broker as to the suitability of these new policy terms for your business.
Assessing Your Business Model and Professional Indemnity Insurance
Please remember to reassess your business model/portfolio of valuations where necessary to benefit from more favourable PII terms for your business.
Posted on July 6, 2021