11/07/2014 - 10:26

Builder says insurance monopoly caps growth

11/07/2014 - 10:26

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Perth-based builder Kaizen Construction says it can no longer take on new projects and grow its business due to home indemnity insurance restrictions placed on it by the only provider in Western Austr

Kaizen Construction managing director Vince Russo.

Perth-based builder Kaizen Construction says it can no longer take on new projects and grow its business due to home indemnity insurance restrictions placed on it by the only provider in Western Australia, QBE Insurance Group.

Kaizen Construction managing director Vince Russo told Business News QBE would only insure work up to the value of $6.2 million, after the builder reported an interim loss in the first six months of FY2014.

“That’s basically two developments for us,” Mr Russo said.

“We had $10.8 million worth of work in the system, so we’ve had to relinquish some of that work.”

Mr Russo said the company would have to look at reducing its overheads by shedding staff to continue operating under the cap imposed by QBE.

“That puts us in a predicament with Fair Work Australia,” he said.

“When we submitted our financials we also submitted the contract works we had in the pipeline, our cash flow, our fixed overheads and everything else, showing our growth and what we are capable of doing, and they really didn’t care about anything other than that we were showing a loss in our financials.

“Their attitude is they are only going to give us a limit they think we are capable of, and if that means we have to cull staff and overheads, so be it.”

A QBE spokesperson said the insurer had acted under guidelines set by the state government regarding builders that post a financial loss.

“The underwriting process includes assessing the financial capitalisation and capability of all builders,” the spokesperson said.

“In the event that a builder experiences a loss, their business will be reassessed in accordance with the guidelines which may impact their approved turnover.”

WA’s home indemnity insurance scheme has come under heavy scrutiny since 2010 because of QBE’s near-monopoly, with the Master Builders Association among the most vocal opponents.

The insurance is required for all residential building works in WA valued at more than $20,000.

It acts as a ‘last resort’ insurance to protect home buyers against defaulting builders and structural defects on new homes and renovations.

Kaizen Construction’s situation neatly mirrors one of the MBA’s biggest concerns - that a monopoly insurer could have the power to dictate the volume, type, timing and amount of work a registered builder can undertake.

An Economic Regulation Authority inquiry into the arrangements was tabled in parliament in September last year, but the MBA maintained that it did not address the industry’s fundamental concerns.

The MBA has long lobbied for the government to install a system of voluntary insurance, similar to a scheme already in place in Tasmania.

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