Standing Committee on Finance & Public Administration

Inquiry into Builders Warranty Insurance

Public Consultation

The Committee has received the following written submissions to the inquiry.

The first public hearings will commence on the 15th March 2010 and continue on the 8th April 2010

If you have had building problems, you now have an opportunity to make your voice heard and help change the system. The Victorian Inquiry into Builders Warranty Insurance (Home Warranty Insurance) will be held early in 2010. Please contact the Consumers Collective for more information. Submissions need to be in soon, so make contact immediately to make sure your views are considered. You can help make a difference and contribute to improving protection for consumers who build or renovate houses.

If
you wish you can telephone Anne on  0401 226 048  or you can send an email to This e-mail address is being protected from spambots. You need JavaScript enabled to view it    

Property Review

NSW dumps junk insurance

Monday November 9th, 2009

GOING, going... well almost gone. Possibly the biggest fraud served upon the Australian public... home warranty insurance is all but on the way out. The door has been opened.. and its shuffling sinisterly out the door.

The New South Wales Government is finally taking steps to fix the plight builders warranty insurance, which has defrauded builders and consumers in the state. The move follows immense pressure from builders and consumers who have suffered under the scheme.

State governments, in particular the NSW and Victoria governments, the HIA and MBAV have all been major supporters and beneficiaries of the schemes through kickbacks from the warranties, which have been described as “worthless’ by Choice Magazine.

Even the Productivity Commission has called on governments to take early action to provide better and uniform protection with guaranteed access to alternative dispute and resolution whilst providing a greater scope to de-resister builders who do not meet appropriate performance standards, and revamp the scheme to ensure it delivers genuine value to building consumers and that they understand what it may deliver to them.

Only Queensland and Tasmania have scrapped the last resort scheme which only covers consumers if the builder dies, disappears or becomes insolvent – the latter process taking years through the Court system.

Yesterday, Minister for Fair Trading Virginia Judge announced the NSW Government will underwrite all home owner warranty policies from July 01 2010.

The Builders Collective of Australia president Phil Dwyer, who has led the fight to get rid of the scheme, yesterday welcomed the move.

“The BCA welcomes the announcement by the NSW Government to take carriage of the Builders Warranty Scheme as it demonstrates that our long held position has been vindicated and we also welcome and embrace the opportunity to work with the Government to achieve and ensure industry management and consumer protection measures are appropriate and work for the primary stakeholders being the consumers and builders who are the parties to all building contracts.

“We are all aware the devil is in the detail and that detail is unknown at this time however the NSW Government has recognised that private insurers who are accountable to shareholders do not have the capacity to provide adequate consumer protection to the purchasers of new homes or renovations under the banner of Last Resort,” he added.

The HIA’s NSW executive director Graham Wolfe said it is critical for example that the new scheme maintains the current distribution arrangements.

“It is also important that the new scheme does not unintentionally penalise good builders who operate sound and well capitalised businesses.

“We must not lose sight of the purpose of the scheme. Consumer protection is not enhanced by exposing consumers to unsustainable businesses,” Wolfe said. “The next 12 – 18 months will be a critical time for residential building. It’s extremely difficult for small and medium building and contracting businesses to keep pace with the constant flow of legislative change. The next 18 months will be very testing.”

Dwyer said the recent release of Victorian Essential Services Commission showed only some 2.5% of claims (273) were accepted over the past six years compared to Queensland’s First Resort insurance regime that provided comfort to 9,552 consumers over the same period and represented 98.5% acceptance of all claims.

“This is the first official comparative data that showed the Last Resort warranty schemes as a scam.

“Private vested interest including private insurers and or brokers such as trade associations have no place in the consumer protection regime or the industry management and the Builders Collective will continue working to rid our industry of that vested interest the same as the Queensland regime where it does not exist.

“We look forward to achieving our long held goals and the Tasmanian decision of last July to dump privatised warranty has seen that State go forward in leaps and bounds as no warranty insurance has seen greater benefits for both builders and consumers and the NSW announcement today leads the way for the nation to follow,” Dwyer concluded.

PropertyReview.com.au

Money for nothing

October 26th, 2009

THE well known Dire Straits song ‘Money For Nothing’ could have been written about Australia’s compulsory housing warranty insurance regime.

For insurance companies and their brokers the premiums roll in and very little of it is ever goes to the people it is supposed to protect.

Like the song says, “that ain’t working but that’s the way you do it, lemme tell ya those guys aint dumb”.

Earlier this year, the Federal Ombudsman’s report stated that it’s the worst performing insurance in Australia. The recently released review by the Victorian Essential Services Commission confirms the warranty scheme is nothing short of a scam.

This scheme has been maintained for seven years on a platform presented by Vero and its partner HIA and supported by a number of state governments.

The Standing Committee on Finance & Public Administration of the Victorian Upper House has recently announced yet another inquiry (No 38) and the terms of reference includes “the specific role of government agencies in their effectiveness in managing and representing Victoria’s registered builders”.

How timely!

The latest Victorian report reveals insurers have only accepted 273 claims from 1363 received between 2002-08. Over the six years a total outlay of only $10.23 million. It’s a profitable business, with insurers earning around $7 million in premium each and every quarter.

The report shows the product is failing to meet consumer expectations and that’s now having a negative effect on the industry via a stream of critical reports in the daily media.

While Governments are duty-bound to their constituents, the politicians administering this scheme have reacted by doing little more than endorse the status quo in the past. However, the content of these reports leave them exposed as their duty of care is now compromised.

The HIA shares half ownership with AON brokers of the brokerage HIA Insurance Services, along with the company's revenue of $22 million last year plus another $15 odd million paid in licence fees for the use of the HIA name, and told a Senate inquiry the product is "certainly not worthless" and it acted as a safety net. But that was before these damming reports.

Meanwhile, the national building industry is facing a crisis with three insurers withdrawing from the market before years end. This will see some 25 to 30% of builders face an uncertain future because without an insurers letter of eligibility they cannot work.

While the departing insurers will claim their exit is driven by a non profitable product, it is the industry belief the latest reviews now question the role and motives of all players who continue to participate in this scheme as their past presentations are now shown to be questionable.

This is compounded through the issue of builders providing non-transferable securities and indemnities to insurers that makes them the underwriters of the insurance that has been largely denied in the past. But the latest review shows that 44% of all builders over the life of the current scheme have provided these undated and unending securities as well as all those builders prior to 2002.

The dominant insurer is Vero and prior to 2002 they held 93% of all builders in their book and accordingly most builders are tied to them as securities are not transferable. Thus, competition is stifled through securities and deeds held.

Moves are currently afoot within the building industry to challenge insurers over the issue as builders believe the practice is not only illegal but also unenforceable. It is being backed by some of the country’s larger home builders who wish to remain anonymous for fear of retaliatory action that could see the loss of their businesses through the power insurers hold over them.

It is difficult to believe that a fundamentally flawed scheme could survive in any western society let alone a democracy like Australia. Compulsory warranty insurance is greed driven and unsustainable. It is bleeding the life out of the people it’s supposed to protect. When it eventually implodes, those responsible will have to account for their roles.

Phil Dwyer’s backers launched a Supreme Court action against the legality of the securities late last week.

Nelson Yap, Editor

PropertyReview.com.au