Building insurance needs renovation
Sydney Morning Herald
Monday November 2, 2009
THE NSW Government is getting ready for another attempt to fix the home building insurance mess. By law, builders in NSW cannot build homes unless each project is covered by builders' warranty insurance. This is intended to cover their clients in case the builder defaults, or goes bankrupt or dies, or the work is not up to standard. The problem is that in NSW, as in most other states, redress can only be obtained through the insurance as a last resort. Cover may be compulsory, but the client who pays for it must exhaust every other avenue first if something goes wrong €“ pursuing the builder through the courts for damages, and sending him bankrupt. Only when all that has been done, or if the builder disappears or dies, will the insurance company consider paying out.This obviously is a long and costly process, and for a family in dispute over the construction of their home, a painfully urgent one. Success is by no means guaranteed.Home building insurance was run by the State Government until the mid 1990s when it was privatised. HIH Insurance became a major provider, but its collapse in 2001 and coincidental turmoil in the insurance industry worldwide prompted state governments to find ways to induce insurers to offer home building policies so cover would be available. Insurers were permitted to offer home building insurance as a last-resort policy.This solution to one problem has now produced another: home building insurance is a bonanza for insurance companies, but no longer functions as an effective way to help home owners when builders fail to do their job properly. The exit of two of five providers of home building insurance from the market has triggered a crisis, and the NSW Government is expected to step in. However it does not intend to change the last-resort priority of claims.There is a better way. In Queensland, the State Government runs home building insurance which policyholders call on as a first resort.Claims which are approved €“ and more than 98 per cent are, compared with less than half in NSW €“ are paid out, and the insurer €“ the State Government, in effect €“ then pursues the builder for redress. Not only that, but according to Choice, premiums in Queensland are substantially lower than elsewhere.In NSW, the Government should indeed become involved in home building insurance, but not to recreate a government-run version of an unsatisfactory scheme. Home building insurance should be reorganised in a way which puts consumer interests first.
© 2009 Sydney Morning Herald
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