NSW looks to reform home-building compensation insurance

The HBC – regulated by the State Insurance Regulatory Authority – is offered by the government-operated NSW Self Insurance Corporation, trading as “icare HBCF”.

Currently, businesses in the residential building industry must buy home-building compensation insurance for each project they do over $20,000 as a principal contractor. It typically covers the construction of a house or low-rise apartment building up to three storeys high, backyard swimming pools, and renovations or additions to existing residential buildings.

The insurance aims to help home owners if the business cannot complete work on their home, or honour statutory warranties, due to insolvency, death, disappearance, or licence suspension for failing to comply with a court or tribunal order to compensate the home owner.

However, as construction costs rise and company failures have been proportionately higher in the construction industry compared to other industries recently, the NSW state government is seeking to reform the scheme. According to the NSW government, in the 2021 calendar year, 24 per cent of total company insolvencies in NSW were in the construction industry.

Moreover, the volume of issues has been rising – and with increasing pressure being placed on the housing construction market, the NSW state government is seeking to expand some aspects of the scheme to provide greater coverage to home owners, while also helping reduce the cost of building work on homes.

A consultation outlining a package of reforms is now open for feedback until 16 August 2022.

What the reforms include

The consultation is considering raising the threshold amount from $20,000 to $26,000. The state government suggests this would bring it in line with increases in the average cost of building since the threshold was last updated (in 2012).

NSW noted that the minimum amount of cover insurers must offer under a contract of insurance has also not changed in 10 years. It is currently $340,000. Given that both the value of property and construction costs have increased in value substantially over the last decade, NSW is suggesting adjusting the minimum amount to $400,000.

The state government is also seeking feedback on whether the cover for non-completion claims should be increased from 20 per cent of the value of the insured work, to either 25 per cent or 30 per cent (given most non-completion claims exceed that amount).

Other reforms include extending cover to victims of unlawfully uninsured home construction (and excluding home owners complicit in uninsured work); changes to the types of work that may be exempt from insurance (such as in high-rise residential buildings), and recovering costs from businesses and culpable directors that fail to insure work.

Speaking of the consultation, the NSW Minister for Customer Service and Digital Government, Victor Dominello, commented: “The family home is still the Australian dream and each year more and more families are building or renovating their greatest asset.

“With almost 90,000 home building projects insured last year and increasing pressure in the housing construction market, the need for an effective insurance scheme has never been stronger.

“SIRA’s discussion paper proposes a range of reforms that offer clear steps to strengthening the scheme’s support for homeowners when their dreams don’t go to plan.

“We encourage home owners and industry stakeholders to share their views on how the scheme can be improved.”