Builders on edge after Vero withdrawal

The Master Builders Association has warned the state's largest home indemnity insurance provider's decision to withdraw from the market could bring the residential building sector to a halt without urgent action from the state government.

Master Builders Western Australia director Michael McLean told WA Business News the withdrawal of Vero from the home indemnity insurance market from June 30 could have a devastating effect on building activity.

Home indemnity insurance is a mandatory requirement on all building work valued at more than $20,000 under the Home Building Contracts Act.

It acts as a 'last resort' insurance to protect homebuyers against defaulting builders and structural defects on new homes and renovations.

Mr McLean estimated Vero held a 70 per cent market share of home indemnity insurance in WA.

"For the largest of three remaining insurers to withdraw just sends shockwaves through the system," Mr McLean said.

"It's never a convenient time for these things to happen, but during a recovery phase and when you realise that we are already under building, the last thing you want is another setback.

"It could just halt the industry in its tracks, because most builders have their indemnity insurance through Vero."

In the current WA market, there are approximately 20,000 new dwellings and more than 20,000 renovations valued at $20,000 or more which are required to have a housing indemnity certificate before building approval is granted.

Mr McLean called on the state government to move quickly to make alternative insurance arrangements to ensure building activity could continue without interruption.

"Clearly the government cannot afford to do nothing; the government has to do something," he said.

"One option is to scrap home indemnity insurance altogether, but that's a political decision I don't think it will be prepared tomake, even though some builders think that's a reasonable option.

"Another option would be to explore the continuation of private insurance, but I don't think that's going to be viable because the market in WA is not big enough to entice insurers to stay.

"What we think is a more likely outcome for the government to consider is limiting home indemnity insurance to the scope of the home building contracts act, which are contracts between 20,000 and 500,000 dollars.

"Most of the punters would fall into that category, we would say maybe 85 per cent of the market, and leave the rest of the industry to have a voluntary scheme.

"Fortunately, following the lessons of the HIH collapse, they can implement what could be termed an emergency clause within the home building contracts act, which provides for a six-month moratorium.

"That means from July 1, when Vero are out of the market, they might provide either an exemption or an agreement to pick up responsibility for builders who cannot obtain the insurance which will enable builders to get building approvals from local government authorities without an indemnity certificate."

According to Mr McLean, the consequences of inaction from government could be drastic, because of a lack of capacity of the remaining two home indemnity insurance providers in WA; QBE and Calliden.

"Its going to be a pain for everyone if an alternate system cannot be put in place because the two remaining insurers do not have the capacity to provide the cover, and even if they said they could, they would make the terms so costly and unreasonable that everybody would be jumping up and down," he said.

"They don't have the capacity and although they might pitch a line to government, I think government would be realistic to know that they don't have that capacity."

Mr Mclean said residential building in other states has also been affected by changes in the indemnity insurance sector.

"In Tasmania the Tassie government withdrew from the field last year, so in Tasmania indemnity insurance is a voluntary thing, so just to give a context Queensland has had a state managed scheme through the building services authority from day one," he said.

"New South Wales announced its intention to withdraw from the 30th of June, which has set the cat amongst the pigeons, and now with Vero going, alarm bells are ringing.

"We're getting a number of calls from builders saying 'we've got a lot of work planned, are we going to be able to get our certificate after the 30th of June?'

"We're saying 'we remain confident because the government are convening a meeting next week with us, so hopefully they'll be on the ball'."