Material changes will occur to the home warranty insurance
system in New South Wales on 1 July 2010. These spell the end for
private home warranty insurers, stand to simplify the process of
applying for home warranty cover and put in place a mechanism to
improve access for builders previously frozen out of residential
The changes are effected through the commencement of the NSW
Self Insurance Corporation Amendment (Home Warranty Insurance) Act
2010. The background to the changes is set out in our March
2010 Building and Construction update
The Act provides for the NSW Government through its NSW Self
Insurance Corporation to become the sole home warranty insurance
provider and to provide the capital backing for the home warranty
insurance scheme. In doing so, the Government will loan $15.6
million to the NSW Self Insurance Corporation to set up the Home
Warranty Insurance Fund (HWIF), to be repaid out
of premium revenue in years to come.
There will be one set of eligibility conditions for all
builders, as opposed to the current arrangements where different
rules apply depending on the insurer. Further, a single Government
reinsurer will allow premiums to eventually be priced consistently
across New South Wales. Hence the simplification.
Builders who currently have eligibility with one of the three
existing insurers will be transferred to the Government scheme
automatically, with no changes to their existing eligibility
profile. The HWIF will not insist on bank guarantees or mortgages,
but may well require third party indemnities from building company
directors or others.
NSW Self Insurance Corporation will set the premiums and service
standards. It is in the process of engaging private insurance firms
(aka scheme agents) to issue policies, to collect premiums and to
undertake claims management. At the outset these will be QBE
Insurance (Australia) Limited and Calliden Insurance Limited. Vero
will exit the scheme entirely on 30 September 2010. Brokers will
continue to be the main shopfront for builders to purchase their
home warranty insurance cover.
One significant reform is the introduction of building
management service providers (BSMP) with a view to
improving the availability of home warranty insurance to builders
perceived to present a greater financial risk. Such builders are
generally new entrants to the industry, those with a patchy or poor
claims history or those without the requisite financial
wherewithal. Many such builders are currently denied sufficient
home warranty insurance cover and have, as a result, been frozen
out of most residential building work.
Such builders will now have an option. They can agree to engage
a BSMP as a condition of the provision of home warranty cover. The
Act and Fair Trading are very short on detail as to how this will
work. However, the theory seems to be that through a BSMP reviewing
the contract documentation, checking the builder's costings and
monitoring the performance of work, builders on the margins are
more likely to meet their contractual obligations, thereby reducing
the risk they present to the Home Warranty Insurance Fund.
BMSP's services won't be free. Questions have arisen as
to how a builder who has priced in a BMSP can compete with those
who have not.
The hope is that after 1 July 2010, only a minimal number of
builders will be unable to obtain cover. This would improve the
prospects for new builders and increase the number of builders
available to undertake residential building work in New South
Wales, thus reducing the state's 20,000 annual dwelling
construction deficit. It is also hoped that these measures will
reduce the likelihood and quantum of future claims which will
ultimately influence the premiums charged and how quickly the
$15.6M loan to the HWIF is repaid.
The Office of Fair Trading has established a dedicated website
for home warranty insurance with a large number of frequently asked
From the consumer's point of view, little will change.
Consumers will still be faced with compulsory insurance that only
offers indemnity of last resort. Consumers will still need to foot
the bill for prosecuting breaches of the statutory warranties and
in most cases will wait years to have their claims paid. Maybe this
will be addressed in the re-write of the Home Building Act, but
don't hold your breath!
The Council announced planning policies to encourage more inner suburban retirement village and aged care development.
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