Home Building Compensation Reform

On 3 November 2016 the New South Wales government issued a media release announcing an overhaul of the New South Wales Home Building Compensation Fund (HBCF).

HBCF is a mandatory insurance product which builders are required to take out for residential building work over $20,000.00. The insurance provides a safety net for home owners in the event a builder cannot residential building work or fix defects due to insolvency, death, disappearance or license suspension.

As at 30 June 2015, the HBCF was 293.8 million dollars in deficit, an increase of 43% on 30 June the previous year and the government claims that in its current form the HBCF is not financially sustainable without reform and if reform is not undertaken it will compromise its ability to protect home owners.

The key elements of the reform include:

• Broker commissions will be phased out, eliminating 50% of the current cost of a policy and instead brokers will be free to charge builders competitively set fees.
• The builders risk will inform the premium pricing, so that premium prices better reflect builders level of risk resulting in high risk builders paying a higher premium and low risk builders paying a lower premium.
• Split-cover will be available in that insurers will be able to offer, under a combined total cover of $340,000.00, a variable rate for either the non-completion or defective building work component.
• The government subsidisation of premiums will be removed and over time premiums will be increased to ensure they meet the expected cost of future claims.
• The reforms will establish framework to allow private providers to re-enter the market and offer home building compensation products that meet or exceed the minimum cost of protections provided by the scheme.

A Bill is expected to be introduced into parliament in the first half of 2017 with the amendments however a date for when the amendments will come into force has not been made public.

The major component of the reforms is the re-introduction of private insurers into the market and it will be interesting to see how private insurers will formulate their policies given that, based on past events, private insurers were not able to turn a profit and withdrew from the market. In this instance however the private insurers will not be confined on premium pricing.

We will keep you updated on the legislative changes and we are available to offer advice on home warranty insurance matters if you have any questions.

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.