SA Domestic Building Insurance Needs to Plug the Holes

by Andrew Heaton

The domestic building insurance scheme in South Australia is struggling to remain viable and requires a significant overhaul in order to address deficiencies in consumer protection, a leader in the state’s building consulting industry says.

Association of Building Consultants executive committee member and spokesperson Chris Short says the state’s domestic building insurance scheme is struggling under the weight of growing insolvencies as well as gaps in the insurance pool.

These gaps, he says, result from exemptions from the scheme for public housing and high-rise residential building as well as the lack of any requirement for property owners who perform work under an owner builder regime to carry insurance in order to indemnify subsequent purchasers of the property in respect of defects relating to the work in question. He says the latter of these factors also means these subsequent purchasers are not afforded any protection in respect of such defects.

To address this, Short says, the exemptions should be removed whilst owner builders should be required to indemnify subsequent property owners for defects which arise from owner builder work in a similar way to what licensed builders would be required to do.

Short adds that maximum payouts under the scheme should rise from $80,000 to $200,000, whilst consumer protection outside of matters relating to insurance should also be improved by expanding the regime of certificates of compliance beyond electrical, gas and plumbing work to cover other trade contractors and through the introduction of a licensing regime for building consultants.

“We’ve got some fairly big holes in terms of the premium pool – it’s just simply not big enough,” he said. “That, coupled with a spate of builder insolvencies which we have had in recent years has seen private insurance companies decide that it wasn’t worth their while and that it has just become non-viable for them.”

“It’s not quite a perfect storm but that’s what you would call it in the current jargon. You’ve got some escape holes that have been cut into the net, you have got owner builders who have escaped it completely, you have got a declining housing market and in that environment you have got a number of builders who have gone into liquidation. All of those things collectively serve to reduce the premium pool and it takes away the attraction for private insurers.

“If high rise apartments and public housing and owner builders were all roped into the scheme, that would increase the premium pool.”

Builders Collective of Australia CEO Phil Dwyer agrees that there are problems, but goes further and says domestic building insurance schemes across Australia are ‘fundamentally flawed.’

Thanks to a number of limitations, Dwyer said protection afforded under domestic building insurance was difficult for consumers to access.

These include the ‘last resort’ nature of the system, a restriction of payouts to a maximum of 20 per cent of the contract value (up to the current maximum of $80,000), and a tendency of claims to be disallowed on the basis that the consumer overpaid the builder – a phenomenon which results from a tendency on the part of some builders who are facing bankruptcy to over claim on contracts.

Dwyer says governments should adopt a holistic building management regime that incorporates licensing, insurance with a statutory scheme, consumer protection and compliance.

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