NSW Home Warranty collapses

The NSW Government will now underwrite and capitalise the Home Warranty Insurance Scheme from July 1, 2010.

It appears the new model will run in a similar way to NSW’s workers compensation insurance, putting licenses out to tender. This has potential to bring new players into the market, such as claims handlers.

However, the change seems to have stalled any negotiations regarding SPASA-branded home warranty insurance, although other types of insurance options are still possible for the association.

The new home warranty model will be:

• Underwritten and capitalised by the Government;

• Funded by home warranty insurance premiums;

• Managed by Treasury through the Self Insurance Corporation;

• Operated by the private sector (by way of a competitive tender) for the provision of services in relation to the issue of project certificates, collection of premium and claims handling.

Underwriting criteria will be determined by the Government acting on the advice of the Home Warranty Insurance Scheme Board and with building industry input.

There had been substantial contraction in the home warranty insurance market following the Global Financial Crisis (GFC); evidenced by Lumley General and CGU Insurance Limited exiting the scheme earlier this year.

The Government had been advised that more insurers were due to exit the market in the near future, and was concerned that an increasing number of NSW builders were unable to obtain cover.

Cover for building projects already issued by insurers will remain in force for the duration of the policy, allowing consumers to make claims where necessary.

Builders who have had eligibility with CGU should already have arranged new cover with one of the other insurers: Calliden, QBE or Vero. Those with cover from Lumley must have new warranty insurance organised well before January 1, 2010.

This applies for builders to continue contracting for any work requiring home warranty insurance, regardless of these future changes.

Transitional provisions will be in place to ensure continued access to home warranty insurance through the three remaining insurers (Vero, QBE and Calliden) until such time as the new arrangements come into effect, which is expected to take six months.

The Government has made it clear that if a builder cannot get insurance, they cannot work, and that their apprentices and sub-contractors cannot work. Builders who are currently unable get cover insurance should contact Fair Trading on 13 32 20.

The plan is to incorporate a “managed” cover offering as part of the new scheme arrangements. This type of cover is designed to assist new entrants to the industry or existing builders who have low equity in their business.

Fair Trading says other options include:

• The expansion of the current Home Warranty Insurance Scheme Board to include industry and consumer representation;

• Further consultation with industry and other jurisdictions, particularly Victoria, with a view to possibly harmonising new schemes;

• Development of the specifications for the tendering out of the operations of the scheme and the introduction of an amendment Bill into the Parliament in early 2010, to provide the framework for the new arrangements.

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