Home Building Compensation Reform is Coming
What has happened?
The Home Building Amendment (Compensation Reform) Bill 2017 was given assent on 27 June 2017 to become Act No. 28 of 2017. The Act will commence on a date to be proclaimed by Parliament.
Once commenced, the Act will amend various sections of the Home Building Act 1989, specifically in relation to home building insurance.
The main point of the legislation was summarised by the Honourable Rick Colless during his Second Reading speech in the Legislative Council on 20 June 2017:
“The bill establishes a legislative framework for private sector providers to offer home building compensation cover by way of insurance or alternative indemnity products. This will increase competition, consumer choice and promote competitive and sustainable pricing. The amendments made in the bill to section 102 of the Act allow the Government’s insurance provider, the NSW Self Insurance Corporation, to continue to deliver insurance to builders through Insurance and Care NSW while opening the scheme to new players. The New South Wales Government has directed the Self Insurance Corporation to move its product pricing to full cost recovery and ensure it operates more efficiently with less of the premium being dissipated on scheme costs…”
We have previously written about the legislation in detail:
What are the key changes?
Key changes to the home building insurance regime include the following:
- The new State Insurance Regulatory Authority (the Authority) will be created to carry out regulatory functions relating to home building insurance and private insurers who provide the insurance, including the power to establish mandatory guidelines about insurance premiums and other matters and the power to reject proposed insurance premium.
- New insurance providers will be able to offer home building insurance products.
- Claims made 10 years or more after the work insured was completed will be prohibited.
- An indemnity scheme will be established for claims relating to licensed insurers who become insolvent.
- Home owners will be able to to receive cover that exceeds the minimum prescribed in the legislation.
- Alternative indemnity products will be allowed to be offered, including fidelity fund schemes and specialised insurance arrangements.
- Two separate (split/cover) insurance products will be created, which can be provided by different licence holders:
- Each of the split cover amounts will be set at $340,000 with the result that home owners will have available a minimum total cover of $680,000.
- One product will cover home owners against the risk of loss due to non-completion and associated breaches of statutory warranty during the construction period.
- The second product will cover home owners against the risk of loss after the work is complete for the duration of the statutory warranty period.
- Builders will need to take out cover for both risks, whether through buying a combined cover product or by buying the two split.
- Insurance guidelines can be issued that will be binding on licensed insurers and providers and which will cover issues such as premiums, market practices, claims handling, prudential standards, contracts of insurance, underwriting and builder eligibility.
We will keep you updated about developments with the implementation of this legislation and the impact it has on participants in the home building industry.
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