Home warranty insurance: Tassie joins the mainland

Home warranty insurance: Tassie joins the mainland | Insurance Business Australia

Home warranty insurance: Tassie joins the mainland

After a public consultation process last year, the Tasmanian government has released a draft Residential Building (Home Warranty Insurance Amendments) Bill 2022 for comments. The government is planning to reintroduce mandatory home warranty insurance (HWI) for both new residential buildings and renovations of existing ones for work valued at $20,000 or higher.

Tasmania is currently the only state without home warranty insurance (HWI). Under the scheme, builders will likely require help from brokers to apply for the coverage.

Elise Archer (pictured above), the state’s Minister for Workplace Safety and Consumer Affairs, said the legislation will strengthen consumer protections and the building regulatory framework.

“This will ensure Tasmanians who build a home have the appropriate protections in place if their builder dies, disappears, or becomes insolvent,” said Archer.

The Tasmanian government agreed to answer questions from Insurance Business about their HWI scheme.

Tasmania’s HWI is modelled on other states

In written responses, a Consumer Building and Occupational Services’ spokesperson said the state’s scheme was drafted “in consideration of similar models within other states and territories, that best suit Tasmania.”

“The cover period for homeowners will extend for six years, aligning with the existing statutory warranties for residential building contracts in Tasmania,” said the spokesperson.

Read more: Tasmania seeks opinions on home warranty insurance

The regulatory impact statement accompanying the draft legislation claims introducing the HWS will produce a more than $12 million benefit to the local economy over 20 years. The spokesperson said a cost benefit analysis (CBA) showed quantifiable benefits like a reduction in building company insolvencies and non-quantifiable benefits including peace of mind for consumers.

“As with any insurance product, there will be a cost in the form of insurance premiums, that will be incurred by homeowners as the beneficiaries of the insurance,” said the spokesperson.

The objective of HWI, they said, is to protect consumers “in the most efficient way possible” from the adverse events which may occur undertaking building works.

“Given this, the parameters proposed for the Tasmanian HWI scheme have been considered with a focus on providing appropriate cover for homeowners, at an appropriate premium,” said the spokesperson.

A “last resort” scheme to protect consumers

The spokesperson said this is a “last resort” scheme in alignment with HWI models across Australia, except in Queensland. They said there was no danger builders could rely on the insurance to cover faulty building work.

“The proposed ‘last resort’ HWI scheme will only be available to consumers where their builder has died, disappeared or become insolvent,” said the spokesperson. “If a builder is still operating, then there is no claim event, and the builder remains liable to address defective or incomplete work under the relevant Residential Building Work Contract.”

The maximum claim under the scheme, according to the draft bill, is $200,000. IB asked the spokesperson for the pros and cons of setting this relatively low maximum amount.

“Higher levels of cover would likely result in higher costs to consumers, in the form of higher premiums,” they said. “The claim value requirements proposed within the draft Bill are broadly consistent with those provided in schemes operated in other jurisdictions when accounting for the median capital house price.”

In line with other Australian jurisdictions, the spokesperson said the Tasmanian government will need to underwrite the risk of HWI “to a certain degree.”

“The Tasmanian Government proposes that a contract manager model be adopted for the scheme,” said the spokesperson. “This model will rely on an arrangement with a market insurer providing risk assessment, claims management and administration services.”

The state did actually have mandatory HWI until 2008. At that time, the former government removed the requirement for HWI due to the increasing cost of premiums and criticisms about the efficiency of the scheme from consumers and the industry.

However, in recent years, the increasing number of building firm insolvencies and the impact on local consumers led to the reintroduction of this new version of the scheme.

Broker involvement in NSW scheme has dropped dramatically

A similar scheme in NSW is called the Home Building Compensation Fund (HBCF). The scheme is run by Insurance and Care NSW, or icare, the government agency that provides insurance and care services across the state.

In recent years, the number of brokers involved has dropped dramatically.

Read more: Broker slams icare’s new builders’ warranty insurance panel

In an IB interview in 2021, a broker slammed icare’s new builders’ warranty insurance panel that reduced the number of brokerages able to provide HWI from 23 to nine. The original HBCF panel consisted of more than 100 brokers or providers.

Speaking on condition of anonymity, the broker asserted: “It was pretty clear that icare had already cherry-picked out of the existing distributors who they wanted and created this tender criteria that they knew that only [the preferred ones] would make.”

icare described its process as competitive, transparent and robust.

The broker, however, lamented that “it just reeks of mismanagement and corruption,” and went on to state: “It sounds like they just want to phase out brokers altogether.”