Home Sweet Warranty Home … Maybe Not ?

So far I’ve resisted blogging about Home Owners Warranty Insurance in NSW … but I can’t hold back any more.  So here’s goes.

Many years ago the NSW Government provided the consumers of residential building services with some protections which included –

• a licensing and supervision service for builders,
• a simple dispute resolution services for complaints about builders and work, and
• an insurance scheme that compensated consumers when builders performed defective work or didn’t finish work.

The system worked well for about 15 years.

But, in 1996 the NSW government privatised the insurance provisions so that approved insurers (rather than the government) compensated consumers when builders’ work was inadequate.

There are many opinions about the success of that change … and no agreement.  But, it could not have worked well because since that time the following things have occurred in relation to the insurance regimes. 

• Two of the major insurers (HIH and FAI) went into liquidation.
• The NSW government had to step back in to underwrite the insurance HIH and FAI provided via BIGCorp.
• The extent of cover by time has changed 4 times – reducing the coverage.
• The extent of cover by defect type has changed 5 times – reducing the duration of cover for smaller defects.
• Coverage has gone from first resort (you claim against the insurance first) to last resort (you only claim after you have managed to liquidate or bankrupt the builder).
• Coverage has been removed for buildings over 3 storeys.
• Notice periods for making claims have been shortened and tightened.
• More insurers have left the market and the NSW government has had to step again.
• Litigation has increased over the larger and more complex claims.
• Court decisions about cover have been increasingly unfavourable for consumers.
• Insurers can now argue a range of new and complex mitigating matters to reduce cover.

Maybe it’s just me but that suggests it’s been a bit problematic.

And, the changes have meant that the protections home owners warranty insurance are supposed to provide are largely non-existent for most building consumers in NSW today.

Yet, the cost of home owners warranty insurance is borne by the consumers are builders pass it on to them in the pricing of work and construction.

Interestingly, Choice Magazine, in a 2008 review of home owners warranty insurance, described last resort schemes as “junk insurance’ and “worthless” and said –

Consumers need protection if something goes wrong with their home building contract. This means good quality insurance and access to an alternative dispute resolution scheme. The current privatised home warranty scheme, as it operates in most Australian states, appears to primarily benefit insurers and larger building companies at the expense of consumers and smaller builders. 

A Queensland-style system offers much higher levels of protection for consumers as well as being easy to access for builders. Tasmania now goes as far as it can to matching the Queensland scheme.

CHOICE calls on the other states and territories to act to ensure that home building insurance and warranty schemes offer value for money, as recommended by a recent Productivity Commission inquiry.

I agree !!!

And, here’s a funny thing too …

If you buy a $50,000 Holden or Ford and it doesn’t work, things are missing or it leaks inside when it rains there’s a lot you can easily do about it and you’d eventually get a replacement or compensation. 

But, if you buy a $500,000 apartment and things don’t work in it, things are missing or it leaks you will have to sue the builder in civil courts, win, take them to liquidation and then make a claim against an insurance policy where the compensation is limited, you may need to run another court case and you may not get all your costs back.

Sound wrong to me …

What do you think ?  What’s your experience of Home Owners Warranty in NSW ?  What suggestions do you have ?

Francesco …