Home warranty insurance in NSW 

History

The NSW home warranty insurance scheme commenced in 1972 and operated as a government administered scheme until 1997:

• the cover was set at a maximum of $40,000, which was increased to $100,000 in March 1990
• cover for incomplete work was capped at $25,000.

The reports of the Royal Commission into the Building Industry (1992) and the Inquiry into the Building Services Corporation (1993) recommended a move to a private scheme. 

The Government accepted the recommendations and the scheme was privatised on 1 May 1997:

• the minimum cover to be provided by insurers was set at $200,000, which was increased to $300,000 on 1 March 2007 and to $340,000 from 1 February 2012
• cover for incomplete work is now set at 20% of the contract price (including variations).

On 15 March 2001, HIH Casualty and General Insurance Limited and FAI General Insurance Company Limited, holding approximately 40% of the home warranty insurance market, were placed into liquidation. During 2001 and 2002, all insurance markets in Australia and overseas were in turmoil and a number of insurers and reinsurers withdrew from the home warranty market.

In response to the turmoil, the NSW and Victorian Governments introduced a range of reforms from 1 July 2002, including moving from a 'first resort' to 'last resort' scheme. As a last resort scheme, cover is provided in the event of the death, insolvency or disappearance of the builder.

On 30 September 2003 the final report of the NSW Home Warranty Insurance Inquiry found that home warranty insurance should continue to be provided by the private sector on a ‘last resort’ basis and made seven recommendations for reform to ensure transparency, accountability and accessibility to the scheme, as well as affordability to builders and the level of protection provided to homeowners.

The Inquiry’s recommendations also included the formation of a Home Warranty Insurance Scheme Board, the removal of cover for high-rise buildings and the introduction of mandatory market practice guidelines for insurers.

Changes from 1 July 2010

Advice to the Government from the Home Warranty Insurance Scheme Board indicated that a substantial contraction of the market had occurred following the Global Financial Crisis with a number of insurers subsequently leaving the market during 2009.

In late 2009 the Government announced major structural reforms to the Home Warranty Insurance Scheme in New South Wales that will safeguard building industry jobs and better protect home owners.

The new Scheme commenced on 1 July 2010 and is managed by NSW Treasury through the Self Insurance Corporation, and operated by QBE Insurance (Australia) Limited and Calliden Insurance Limited as insurance agents for the Government–underwritten home warranty insurance scheme. More information is available on the home warranty insurance fund website at www.homewarranty.nsw.gov.au.

Recent consumer protection enhancements

The home warranty insurance scheme is just one part of an overall consumer protection regime for home owners having building work undertaken in NSW. Recent enhancements to this regime include:

• introduction of mandatory critical-stage inspections for all classes of buildings (this is administered through NSW's planning system)
• establishment of an early intervention dispute resolution service by NSW Fair Trading with continued access to the Consumer, Trader and Tenancy Tribunal
• commencement of enhanced mandatory contract provisions requiring compliance with the Building Code of Australia, the provision of a consumer guide to homeowners, and the inclusion of a check list and cooling–off period
• establishment of a public register of builders and trade contractors, providing on-line information about builders and other licensees so home owners can assess the background of contractors with whom they intend dealing
• home warranty insurance policies issued from 19 May 2009 enable home owners to be able to make a claim under the policy where the licence of a builder is suspended or cancelled for failing to comply with a money order of the Tribunal or a court. This will reduce delays in getting homes completed or defective work rectified because insurance claims can be made more quickly
• an increase in the minimum cover provided under policies issued after 1 February 2012 to $340,000
• a halving of the excess paid by consumers in relation to a claim from $500 to $250
• home owners may be able to make a delayed claim outside the insurance period if they can demonstrate that the builder was diligently pursued to rectify the problem and they have notified their insurer in writing during the insurance period.

Top of page