01/07/2010 - 00:00

New warranty scheme hurts builders: MBA

01/07/2010 - 00:00

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WESTERN Australian builders are experiencing teething problems with the transition to new builders’ warranty insurers, which the industry expects will result in higher costs for property buyers as the market adjusts to the withdrawal of the sector’s large

New warranty scheme hurts builders: MBA

WESTERN Australian builders are experiencing teething problems with the transition to new builders’ warranty insurers, which the industry expects will result in higher costs for property buyers as the market adjusts to the withdrawal of the sector’s largest insurer.

Forty-one per cent of respondents to a recent Master Builders of Australia survey had experienced problems transferring their insurance, while 54 per cent of residential-only builders reported issues.

Builders have been forced to find alternative arrangements for builders’ insurance, which is compulsory in WA for building jobs valued at more than $20,000, from July 1 after the largest provider, Vero, withdrew from the market.

The most common issue, reported by 41 per cent of builders, was higher premiums with remaining insurers QBE and Calliden.

The average premium increase was reported as 19 per cent, and ranged from 3 per cent to 375 per cent, according to the survey.

Thirty-three per cent of respondents reported excessive waiting time for new coverage policies and additional requirements, such as deed of indemnity, or a cash injection into the business.

Of concern to the market, MBA director of housing and economics Gavan Forster said, was that in 10 per cent of cases, builders were denied coverage.

“The ones that seem to be having the major problems are the smaller, newer builders that haven’t got a track record in the industry, and so therefore there is nothing for them,” Mr Forster said.

“Although Vero might have covered them previously, when they are transferring to QBE they’ve got a different risk profile.

“So that means they are having difficulty and that might be either higher premiums, or it might be requiring to give a director’s guarantee, or alternatively, the worst result is if they get knocked back totally.

“The only choice they’ve got then is to go to the government, which has set up an appeals mechanism.”

Joondalup-based builder Homes by Dalessio’s managing director, Jason Dalessio, said he experienced significant premium increases when he applied for builders’ warranty insurance for a job worth just over $1 million with Calliden.

“They’d previously done a similar sized couple of jobs with me and their premium was around $1,400,” Mr Dalessio told WA Business News.

“When I went back to them, only about 18 months since I got coverage for a job of similar value, they wanted $14,000 for the premium.

“I went back to see my broker and asked if they could look at it again, and my broker’s exact words were ‘Calliden has said that they don’t want to be at that level of the market anymore, so they are pricing their premiums accordingly so that people have to look elsewhere.’

“If I was to continue with them, I’d just have to put that on my price.”

Mr Dalessio also said the insurance companies’ extra requirements for builders’ warranty had constrained growth because his insurers would not offer coverage for a turnover higher than $7 million.

“They control my overall turnover at $7 million, and at an individual job level they won’t give me a certificate over $1.5 million, so if someone came to me with a house that costs $2 million in Peppermint Grove, I’ve got so say ‘no I’m sorry, my insurance company won’t allow me to do it,’” Mr Dalessio said.

“Although I have a degree in construction from Curtin University, I’m a registered builder, and I’ve built houses bigger than that before, they just won’t cover me.

“It’s ludicrous that an insurance company dictates my business, they just have total control.”

 

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