What NSW Builders Need to Know About Mandatory PI Insurance

The Design and Building Practitioners Act 2020 (NSW) (DBP Act) was a major reform aimed at restoring public confidence in the New South Wales building industry. The Act introduced registration and insurance obligations for any design, engineering, project managers and building practitioners working on Class 2 (i.e. multi-dwelling) buildings or mixed use buildings with a Class 2 part. This is to ensure that all practitioners have the necessary skills and qualifications to carry out their work and meet the standards of compliance required in Class 2 buildings.

Furthermore, The DBP Act requires practitioners to comply through use of The NSW Planning Portal, which mandates registration and rigorous compliance for Class 2, 3, and 9c buildings. Practitioners must lodge regulated designs, compliance declarations, and notify commencement of work via the Portal before construction begins to ensure compliance with the Building Code of Australia. This process exposes practitioners to professional error and hence Professional Indemnity (PI) insurance will no longer be optional—it will be a legal requirement with effect from 1 July 2026.

Here is a breakdown of what this can mean for your business.

1. Why the change?

While designers and engineers have been required to hold PI insurance since 2022, builders were granted a series of extensions to allow the insurance market to catch up. From 1 July 2026, this grace period ends. The NSW Government’s goal is to ensure that if a building has a major defect, that there can be insurance available to help compensate owners.

2. PI Insurance vs. Public Liability

It is critical to understand that your existing Public Liability insurance is likely not enough.

• Public Liability covers physical damage or injury (e.g., a brick falls and hits a car).
• Professional Indemnity covers “professional errors” (e.g., you follow a faulty design, fail to supervise a subbie properly, or sign a Compliance Declaration for work that doesn’t actually meet the BCA).

3. The “Adequacy” Test

The law doesn’t set a “one size fits all” dollar amount. Instead, you must be “adequately insured.” To prove this, you must assess:

• The scale and complexity of your projects (Class 2, 3, or 9c).
• The number of storeys and the total contract values.
• Your claims history and the potential cost of repairing major defects.

Tip: You are required to keep a written record of how you decided your insurance level was “adequate” for at least five years. If the Building Commission audits you, they will ask for this document.

How we audit design and building practitioners | NSW Government

4. Retrospective Risk (The 10-Year Rule)

The DBP Act introduced a statutory duty of care that lasts for 10 years after a project is finished. This means you can be sued today for a mistake made years ago. When shopping for PI insurance, ensure your policy has a “retroactive date” that covers your past work, not just new projects starting after July 2026.

5. The Penalty for Ignoring the Deadline

If you are a registered Building Practitioner and you continue to work or sign off on Compliance Declarations after 1 July 2026 without PI insurance:

• Registration at Risk: You may lose your practitioner registration.
• Heavy Fines: Corporations can face fines exceeding $33,000, and $11,000 for individuals.
• Personal Liability: Without insurance, your personal assets could be at risk if an owners’ corporation sues for building defects.

Next Steps for Builders

1. Talk to Hills Insurance Now: Don’t wait until June 2026. PI insurance for the construction industry can be difficult to place; start the conversation early to get a sense of premiums.
2. Audit Your Records: Ensure your “Regulated Designs” and variations are perfectly documented. Good record-keeping makes you a lower risk for insurers and can lower your premiums.
3. Update Your Contracts: Ensure your contracts reflect the new insurance obligations and the costs associated with them.