National Review of Home Builders
Warranty Insurance and Consumer Protection

Report prepared for the
Ministerial Council on Consumer Affairs

©Copyright

Professor Percy Allan AM

Principal, Percy Allan & Associates Pty Ltd

June 2002

© Commonwealth of Australia 2000

ISBN 0 642 74158 1

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available from the Department of Communications, Information Technology and the Arts. Requests and inquiries concerning reproduction and rights should be addressed to:

The Manager
Copyright Services
Info Access
GPO Box 2154
CANBERRA ACT 2601

or by e-mail:

cwealthcopyright@finance.gov.au

Printed by Canprint Communications Pty Ltd

Table of contents

Acronyms v
Executive Summary vii
Part 1: Review's purpose 1
Part 2: Industry background 3
Part 3: Stakeholder complaints 23
Part 4: Main findings 27
Part 5: Possible solutions 37
Part 6: Conclusion and recommendations 61
Appendices
Appendix 1: Submissions to inquiry 65
Appendix 2: Stakeholders interviewed 69
Appendix 3: Relevant other inquiries 73
Appendix 4: Summary of HBWI in Australia and other countries 75
Appendix 5: Queensland Building Services Authority's Financial Results 105
Appendix 6: Accompanying charts 109

Acronyms

Abbreviations (continued)

Executive Summary

Home builder warranty insurance is in a crisis.

Many builders complain they cannot get insurance or if they do it is insufficient to support their business turnover. Private insurers are skittish and recently threatened to withdraw from the market if governments did not scale back mandatory insurance requirements. Consumers are realising insurance either does not exist (for example, high rise apartments) or is cold comfort since claims are only recognised if their builder has died or gone out of business. Meanwhile the regulatory framework for the home building process does not provide sufficient protection for honest consumers, builders and insurers or offer quick and inexpensive remedies if things go wrong.

The good news is that consumers, builders and insurers, though divided over who and what to blame, recognise each other's plight and want a jointly negotiated outcome. Essentially, governments will need to put less emphasis on insurance and give more attention to strengthening the regulatory framework for home building if consumer, builder and insurer concerns are to be addressed. Making the building process more reliable and less acrimonious offers the only lasting solution.

Stakeholders agree that the objectives of any reform program should be:

• Consumer justice;
• Accessible insurance; and
• Sustainable insurance.

Homebuyers are mainly concerned with the first, builders with the second and insurers with the third. Yet each of these objectives is inextricably linked. Unless each is met, problems will persist for all groups.

This report canvasses many options raised in 85 submissions and 75 interviews to address these goals. It presents a core set of `high' and `very high' priority measures that should be undertaken to restore confidence in home building warranty insurance and the home building process more generally. Options assigned a `medium' score should also be given serious consideration.

Hopefully the report provides a basis for governments to engage stakeholders in a meaningful discussion about what to do next. For home builders warranty is a community problem, not just an insurance crisis.

Return to: National Review of Home Builders - Contents