Structure concerns with indemnity insurance cover

THE Home Building Contracts Amendment Bill tabled by Consumer and Employment Protection Minister John Kobelke will lay the groundwork for the development of a mutual scheme to provide housing indemnity insurance for residential builders.

The bill, which has gone through the legislative assembly, is now with the upper house, or legislative council.

The bill proposes the temporary suspension of the House Indemnity Insurance scheme and the entry of mutual schemes to compete with the private insurance groups.

“The Government is addressing the difficulties in the insurance market to ensure the scheme operates fairly for consumers and builders,” Mr Kobelke said.

“A key amendment of the bill is the provision for temporary suspension of the scheme in dire circumstances, such as cover not being available to the market.

“In this event it’s important that the Government has the ability to introduce a temporary suspension to ensure the on-going stability and continuation of the residential building industry.”

There is no guarantee the bill will pass through the upper house, however.

Master Builders Association of Western Australia director Michael McLean said indemnity insurance was a major distraction for operators in the industry.

“It’s also meant that a lot of opportunities for new projects have gone by the wayside,” Mr McLean said.

“And it has created a high degree of angst.

“Builders object to having to satisfy an insurer to carry out work.”

The prospect of a mutual fund was a positive first step, according to Mr McLean.

“But it will only provide a framework for a fund and we’ll probably still need a re-insurer to underwrite it,” he said.

“So far we haven’t been able to find a reinsurer.”

A number of States and Territories currently have mutual funds to provide indemnity insurance for operators in the construction sector.

The ACT has what is termed a ‘fidelity fund’ in place, which is basically a mutual fund without a re-insurer. According to Mr McLean, Mr Kobelke doesn’t want to adopt this model.

“Given the collapse of HIH, the [WA] Government doesn’t want to take the risk, Mr McLean said.

Ultimately, however, consumers foot the bill for the indemnity insurance cost hikes.

“There’s an opportunity cost for the builders and an added cost for home builders,” Mr McLean.

“For a $150,000 home, some builders are paying $1,500 in insurance. It’s an additional $1,000 on top of other increases, and who’s gaining from all this? The insurers.”

The MBAWA will meet Mr Kobelke this week to discuss the issue, which is affecting a number of operators, some of the bigger companies among them.

“It’s not just the smaller operators, there are some pretty reputable builders calling up to say: ‘Hey, we don’t want to publicise our position but we’re having trouble getting insurance’,” Mr McLean said.

“There are more and more builders coming out of the woodwork.

“They are being re-assessed and having to face a reduction in their turnover in terms of their indemnity insurance.”

Some builders were being forced to let work go as a result, he said.

Despite the concerns of some operators, Housing Industry Association executive director John Dastlik said housing approvals in 2001-2002 were at the second highest level ever.

“You can’t get an approval unless you’ve got insurance,” he said.

“There are significant levels of industry activity in the marketplace where some commentators are saying there are problems with getting indemnity insurance.

“That’s not to say that some builders, because of their structure, aren’t having difficulties.”