Latent Defects Insurance: What Developers Need to Know Now

To help address those questions, Christine Miliano from Aviso Specialty spoke with Jack Richards from Price Forbes about the current state of the LDI market, where it is heading, and what developers and their teams should be considering ahead of possible implementation in NSW and potentially other states.

Why is the conversation accelerating now?

There is undoubtedly some frustration and fatigue in the market. Many stakeholders feel they’ve been hearing “LDI is just around the corner” for a long time, and that’s a fair observation.

What has changed is that the conversation has become less speculative and more grounded in practical planning. NSW remains the key focus, but there is growing awareness of how LDI benefits the development environment across other states as well.

While timing remains dependent on government approval and no-one knows when that green light will come, there is broader acceptance now that an LDI framework is going to emerge.

When it does, it won’t simply be a regulatory change. It will reshape how post-completion risk is approached across the industry.

Why are developers, boards and financiers paying closer attention?

The conversation is now centred on real commercial impact.

Boards and financiers are asking practical questions about cost, capital efficiency, delivery risk and reputational exposure. They are also looking closely at how LDI compares with the current Strata bond model.

▲ Aviso Specialty adviser Christine Milano and Price Forbes director Jack Richards.

What’s becoming clearer is that LDI offers more than insurance cover. It introduces independent technical inspection during construction, which supports stronger quality control, and provides longer-term protection to purchasers via an assignable policy.

Combined with the ability to transfer risk off balance sheet rather than tying up capital, it becomes a much broader strategic consideration, not just an insurance decision.

Under the Strata bond model, capital is tied up for a period post-completion, risk largely remains with the developer, and there is limited influence on build quality during construction.

With LDI, the cost is paid as a premium rather than locked-up capital, risk is transferred into the insurance market, and an embedded inspection and quality assurance process supports better delivery outcomes alongside stronger consumer protection.

What are current market offerings delivering?

One of the key areas of discussion is how existing LDI solutions interact with broader regulatory and Strata bond requirements. We are not yet in a fully aligned system.

At present, some stakeholders are questioning whether current LDI market offerings fully replace the need for separate Strata bond arrangements.

In certain circumstances, this has resulted in project stakeholders carrying both the cost of Strata bond security and insurance premium simultaneously.

That must be viewed in context. The market is effectively waiting on government to provide clarity and formal approval for LDI to operate as a recognised alternative to Strata.

Ultimately, no-one knows when that will happen. Clients need that kind of honesty rather than a pitch built around product access.

Should developers wait until regulation is finalised?

Not necessarily. While it is sensible not to act prematurely, there is real value in preparing now.

The way insurers will assess risk is already relatively clear. Governance, construction methods, quality assurance and the reputation of the appointed professional team will all be key factors.

▲ LDI brings independent inspectors onto your site during construction and hands buyers an assignable policy that travels with the building.

These are not things that can be adjusted quickly at the point of placement.

There is also a bigger picture point. LDI is as much about driving better outcomes during construction as it is about protecting against defects post-completion.

Organisations that begin aligning with those expectations early are likely to be in a stronger position when the market formalises, both in terms of access and pricing.

What should developers be doing right now?

The most important thing is preparation. That means taking a structured look at the areas within an organisation’s control and preparing for future underwriting requirements, governance expectations and insurer and technical audit engagement.

Start the discussions early so that as the regulatory position becomes clearer, you have a considered and informed strategy in place.

There is also real value in engaging with a broker who is actively involved in this space; someone who has access to the developing market, understands how insurers are thinking, and can provide clear, honest advice on what is known today and what remains uncertain.

Final thoughts

The market is waiting on government to provide the green light. Clients deserve factual guidance that acknowledges both what is known and what is still being worked through.

If LDI is approved as an alternative to Strata bonds, it has the potential to be genuinely positive for the industry; improving build quality through inspection, strengthening consumer protection and providing a more efficient way of managing post-completion risk.

Until then, the most sensible approach is a balanced one: acknowledge where uncertainty exists, stop overselling the current position, and ensure clients are ready for what is likely to come.

The Urban Developer is proud to partner with Aviso Specialty and Price Forbes to deliver this article to you. In doing so, we can continue to publish our daily news, information, insights and opinion to you, our valued readers.