Building Insurance System To Stay Despite Concerns

The Age

Friday November 14, 2008

Natalie Craig, Property Reporter

A SENATE inquiry has baulked at calling for the removal of the controversial building insurance system at the centre of the Beechwood Homes debacle in Sydney.

"Last resort" home warranty insurance, which is compulsory in NSW and Victoria, deems that a consumer can make a claim for shoddy or incomplete work only if their builder dies, disappears or becomes insolvent.

But when Beechwood was declared insolvent in May, about 400 people who had paid their builder but had yet to see a start on their homes had no power to terminate their contracts.

They waited months while the administrator tried to recover as much as possible from the home owners' contracts, until a buyer stepped in and construction resumed.

Yesterday, the Senate committee ignored calls from legal and consumer groups for a government-run system to replace the private insurance scheme, as it has in Queensland.

It instead recommended improving awareness and consumer protection through the Council of Australian Governments, and endorsed the Housing Industry Association's proposal for a "guarantee of completion".

HIA executive director Ron Silverberg said a completion guarantee could have prevented the Beechwood debacle.

"Insolvency laws are impacting on the effectiveness of the warranty schemes," Dr Silverberg said. "Consumers in NSW and Victoria have to stand in line and wait before the administrator or receiver has tried to extract as much as they can out of uncompleted domestic building projects ... in the event of a builder failing, a consumer should have a level of confidence that a project will be completed."

Critics maintain it is the last-resort system, and not insolvency laws, that is fundamentally flawed.

Builders Collective president Phil Dwyer said there had been about 30 inquiries into the system since it began after the collapse of HIH in 2001.

The finance and public administration committee of the upper house in Victoria is likely to make the insurance the subject of another inquiry next year.

Marina De Nola, who signed a contract to build a home in Caroline Springs in 2004, is still waiting for a certificate of occupancy after her bankrupt builder failed to fix serious flaws.

She said making insolvency an immediate trigger for a claim could have helped, but the costs of pursuing a builder through the courts was still prohibitive. "We're still waiting for repairs on our house. But we know that we're just going to have to save some money and do it ourselves," she said.

While consumers are struggling financially to bring claims forward, insurers have made millions. Questions in NSW Parliament in June revealed that insurers in NSW reaped about $45.4 million last year from the scheme, but had paid out just $16 million in its six years.

Greens Senator Christine Milne attacked the HIA, the dominant broker of the insurance product, in her remarks on the inquiry, saying the current arrangement gave the organisation "undue power and influence".

Dr Silverberg said Senator Milne did not have "a scintilla of evidence to substantiate her allegations", and rejected the idea that the insurance was a "licence to print money".

© 2008 The Age

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