CBL advocates compulsory building warranty scheme

Controls required to stop ‘phoenix builder’ from escaping responsibility

CBL advocates compulsory building warranty scheme

Insurance News

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Recently Auckland Mayor Phil Goff made the call for the introduction of a building warranty or insurance scheme – a call that is wholeheartedly backed by CBL Insurance.

According to CBL CEO Peter Harris, the current system has to be amended.

“Mayor Goff’s comment that under the current regime council is invariably ‘the last man standing’ when claims are made against faulty building work is spot on,” he said.

“In our view, it should be compulsory for builders to take out liability cover against their statutory liabilities under the New Zealand Building Act, which makes builders personally liable for building defects for up to 10 years.

“Otherwise, as the mayor says, the building firm that did the work goes into insolvency, or the builder responsible disappears, and the ratepayer winds up footing the bill.”

Harris said that alongside poor workmanship or substandard materials, one of the biggest risks to homeowners is noncompletion arising from the financial collapse of a builder.

“In that case, under a CBL guarantee or insurance policy in New Zealand or Australia, CBL would step in and complete the house,” he said.

Harris said New Zealand’s ‘leaky homes’ issue demonstrates how a compulsory builders warranty scheme could help ensure quality standards were maintained.

“When we wrote this risk a decade ago in New Zealand we insisted that all of our builders built with treated timber, with air gaps, proper flashings, and no monolithic claddings face-fixed onto framing. We did not agree with some of the building trends of that time, and wrote these terms into policy conditions. As a result, we stayed completely outside the ‘leaky home’ debacle,” said Harris.

Jim Rickard of builders warranty insurance broker Builtin also supports the call for a compulsory warranty scheme.

“We find that most good-quality builders are prepared to stand behind their work,” said Rickard.

“Our preference would be that warranties are insured by a registered third party insurance company rather than self-funding which, in some cases, is currently what happens in New Zealand.”

Rickard also noted that CBL was the only New Zealand-registered and
locally-based insurer offering warranties in New Zealand.

According to Insurance Council of New Zealand CEO Tim Grafton, a robust sustainable building warranty market, which clearly the country needs, requires the following.

“The first is high-quality standards that are well monitored and policed so the risk of poor-quality products and workmanship is low,” he stated.

“The second is the ability to pursue liable parties so the ‘phoenix builder’ cannot escape liability by virtue of folding a company.

“And the third is a large risk pool to ensure a strong, competitive market. A compulsory scheme addresses that latter issue in particular and may well be needed given the small size of the New Zealand market.”

Grafton pointed out that where building warranty schemes are highly successful, such as in France, mandatory cover is in place.

CBL provides building warranty guarantees in five countries, including France and Australia where it is compulsory, a regime the Mayoral Housing Taskforce Report said could enable more innovation, reduce costs for both councils and builders, and improve the certainty of consenting processes.

Harris said that while each country’s regulations are slightly different, CBL’s policies typically cover the building’s systems (building workmanship, gas, electrical, and plumbing) for the first two to three years, water tightness for five years, and structural defects for up to 10 years.


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