THE State Government is considering a request by the Master Builders Association industry mutual fund to provide housing indemnity insurance in Western Australia.
The scheme, which has been two years in the making, will create an industry-based alternative for builders who currently only have two indemnity insurance providers available to them.
Many in the building industry have struggled to meet the requirements of the market’s two housing indemnity insurance providers – Royal & Sun Alliance Insurance Australia Limited and Reward Insurance Limited.
To receive housing indemnity insurance builders require up to 20 per cent of their business’s turnover in cash.
They also must have a bank guarantee and must not exceed the number of annual housing starts their insurance is capped at.
Builders who cannot meet these requirements are effectively barred from the industry due to the Home Building Contracts Act, which requires that housing indemnity be provided before construction starts.
MBA housing director Gavin Forster said the industry scheme would make the indemnity insurance market more competitive and would provide greater accessibility to the industry for new builders.
“Builders have faced two years of hell dealing with insurance companies who have imposed unreasonable entry criteria and business turnover limits,” he said.
“This new scheme provides relief to builders from these restraints.”
Operating through the MBA, Jardine Lloyd Thompson and QBE, the Housing Indemnity Scheme WA will work as a cooperative.
Builders will pay premiums and any profit generated through the scheme will be returned to the industry through avenues such as traineeships and safety training.
Mr Forster said that, unlike other housing indemnity insurance providers, assessment criteria would not be based on a builder’s balance sheet, and there would be no cap on the number of housing starts a builder can commence each year.
“This scheme is run by industry for the industry. Its criteria for entry is very different to a financial institutions criteria,” he said.
According to MBA figures there are 900 active builders in the local industry, and Mr Forster expects the industry to support the scheme.
“Most builders have been put through the wringer with other insurers,” Mr Forster said.
The MBA submission to establish the private fund is currently being assessed against new prudential requirements for industry mutual funds established by the State Government in November last year.
Mr Forster said he was confident the submission met the criteria and that he hoped to have the scheme up and running by February next year.
Housing Indemnity Action Group chairman John Woodford said the market share held by small builders had slumped from 53.4 per cent in 2000 to 41.9 per cent this year.
He said the introduction of the scheme would encourage more small builders back into the industry, making the industry more competitive and giving home owners more choice.
© Business News 2018. You may share content using the tools provided but do not copy and redistribute.