Latent Defects Insurance: Strengthening Confidence in Australia’s High‑Rise Living

A breakfast conversation that shows where the market is heading

In November 2025, Aon held a breakfast in Sydney for the construction industry, where attendees heard from a panel of insurance specialists on the fundamentals and insights into latent defects insurance (LDI). The panel included Mary-Catherine Hamill, Head of Construction, Aon Australia, Milos Obradovic, Construction Placement Leader, Aon Australia, Corey Nugent, Global Senior Underwriter, Resilience Insurance, and Joe Andary, Director of Business Services, SDSS.

What followed was a very candid discussion around how the product works in practice, what it will and will not cover, and how it fits into an environment of extended duties of care, bonds and owners’ expectations. For many in the room, it was the first time they had seen a fully formed LDI solution operating in Australia.

1. From “it doesn’t exist here” to a live solution

For much of the last two decades, LDI has been a theoretical answer to a very real problem. As Milos reflected, the conversation around latent defects insurance would regularly come up, but “for the large part of my 19 years in the industry… the answer’s always kind of been that product doesn’t really exist here in Australia.”¹

That has shifted. Over recent years, Aon and Resilience Insurance worked through what it would take to bring a genuine LDI proposition to the local market. Milos described how they “started the process… back in May 2025”¹ and by July had signed an agreement “to start to transact the product,”¹ with the first placements following soon after.

Corey summarised the outcome in simple terms: “Effectively, what this product offers is coverage for structural events in residential apartment buildings exceeding three storeys in height. It’s there to cover where there is physical damage to the structural elements of the building after it’s finished its construction… and an Occupation Certificate has been granted.”²

2. What LDI really covers – a structural focus

A key message from the panel was that LDI is not a catch-all defects policy. As Corey put it, “We’re only talking about load bearing or structural elements of the asset for the building.”²

That means the policy intends to respond where a latent defect in a critical structural element leads to physical damage. Practically, that includes components such as:

• Primary load-bearing walls and frames
• Basements and foundations
• Other structural elements necessary for the stability of the building

When those components fail due to a hidden defect within the policy period, the intention is that LDI may fund rectification, subject to the deductibles, limits, exclusions and conditions set out in the policy.

Just as important are the boundaries. Corey was very clear that “minor cracking or wall and paint finishes are not covered by this policy. Wear and tear are also excluded, and improper maintenance or poor upkeep is also excluded.” He went on: “Any damage caused by an occupant of the premises is also not going to be covered,” and where “the intended use of the premises is not as per what’s been declared and intended” that will also be “denied or excluded under a policy.”²

That distinction – structural versus cosmetic, hidden defect versus foreseeable deterioration or misuse – is central. It prevents LDI from being overwhelmed by everyday snagging lists and keeps it focused on the issues that genuinely threaten safety and asset value.

3. The long-tail problem LDI is trying to solve

Everyone in the room recognised the long-tail reality of structural defects. Joe described how issues can surface “two, three, five, six years down the track” and quickly “becomes a litigation point from the Occupation Certificate… with legal costs… the $500,000 becomes $1,000,000 pretty easily.”³

That comment captures the dilemma neatly:

• The technical cost of fixing a structural issue may be significant on its own.
• The process of arguing about it – across multiple parties, with multiple experts – can easily double that figure.

Traditionally, owners’ corporations and developers have relied on a mix of statutory warranties, contractual rights, bonds and retentions to navigate these disputes. In practice, that often means years of uncertainty and escalating cost.

LDI takes a different approach. Rather than waiting for a dispute to arise, the parties may agree in advance to transfer a defined portion of structural risk into a long-term insurance policy. That policy is priced upfront, based on the design and construction of the building, and is supported by independent technical oversight.

For owners’ corporations, that may provide a more direct route to funding qualifying structural rectification. For developers and builders, it could be a way to move part of that long-tail exposure off their balance sheets and demonstrate to financiers, purchasers and regulators that they have thought seriously about structural risk.

4. “You can’t mark your own homework”: why independent inspection matters

One of the most striking parts of the breakfast was the discussion on technical inspection services (TIS). As Mary-Catherine explained, LDI is not just about issuing a policy at completion. It is underpinned by a “proactive underwriting process” in which TIS is applied “through the full design [and] construction phase all the way through that project and it is independent.”⁴

Joe was equally clear on independence. Project teams often ask if their existing certifier or engineer can take on the role for LDI, pointing out that they have “the best certifier, engineer, whatever it is on [the] job.” The answer is no: “You can’t mark your own homework. We have to have an independent proposition where one of our people is in there managing that risk.”³

This independent TIS is designed to achieve three key objectives:

1. Intended to improve visibility during construction
   By reviewing critical stages, design details and on-site execution, the TIS team may flag issues early, when they are cheaper and easier to fix.
2. Designed to align underwriting with reality
   Insurers are not relying solely on paper designs; they have eyes on the ground. That may make them more comfortable offering long-tail structural cover.
3. Intended to support fair treatment when claims arise
   The way the product is structured means that where the insurer has required independent inspections and sign-offs, and the builder or developer has followed that process without negligence or fraud, the insurer may be less likely to pursue recovery against them.

For builders and developers, that framework is designed to help manage certain recovery risks: where the builder or developer has cooperated with TIS requirements and delivered to the agreed standard, the likelihood of the insurer seeking recovery is lower.

5. Bonds, duties of care and what is “most economical”

The panel was realistic that LDI sits within a broader ecosystem of bonds, retentions and statutory obligations.

On duties of care, Mary-Catherine highlighted that under the Design and Build Practitioners Act and Residential Apartment Buildings Act “builders and developers now have a 10-year duty of care that applies.”⁴ LDI does not remove that duty, but it “does cover off that position in protection of the builder and developer and the consumer”⁴ by creating a financial backstop for certain structural issues arising within that timeframe.

On bonds, there were questions about whether LDI is a replacement or an addition. Corey acknowledged that “there’s no clear-cut answer in that part.”² Whether a developer leans more heavily on bonds, LDI, or a combination will depend on “what’s most economical and works best”² for that project and its stakeholders.

For some portfolios, tying up capital in bonds across multiple developments may be less attractive than purchasing a long-term policy with embedded TIS. For others, regulatory settings and lender expectations will dictate the mix. The important point is that LDI is now a live option to consider alongside existing tools, not an abstract idea.

Where to from here?

The November 2025 breakfast made one thing clear: latent structural defects are not new, but the tools available to manage them in Australia are changing.

A decade ago, LDI solutions might have had limited availability in the Australian market. Today, there is a functioning solution available for residential apartment buildings above three storeys, built on independent technical inspection and a clear focus on structural risk.

For Aon’s construction and real estate clients and prospects, the next step is a strategic one: deciding where LDI fits alongside your existing approach to design quality, contracts, bonds, retentions and governance. The question is no longer whether latent defects will occur – it is how deliberately you choose to plan for them.

For more information or to speak to a specialist, please contact Mary-Catherine Hamill, Head of Construction, Australia at mary-catherine.hamill@aon.com, or Milos Obradovic, Placement Director for Construction, Australia, at milos.obradovic@aon.com.