Home building compensation reforms

The reformed NSW Home Building Compensation Scheme started on 1 January 2018.

The scheme compensates homeowners if their builder is unable to complete building work or fix defects because of insolvency, death, disappearance or licence suspension for non-compliance with a money order made by a court or the tribunal in favour of the homeowner. Other insurance providers can now join the scheme offering innovative products and increasing competition.

Under the new home building compensation scheme:

• consumers continue to be protected
• there will be better regulation and monitoring
• the market is open to competition and innovation
• the scheme can become financially sustainable

Towards financial sustainability

Under the reformed scheme, premiums and other changes will be adequate to cover risks to homeowners.

The State Insurance Regulatory Authority now has the authority to assess and approve premiums, or reject premiums deemed inadequate, excessive or otherwise not in accordance with the relevant HBC insurance guidelines.

Private sector providers can apply to enter the market to encourage product innovation, choice and competition.

There is now an operational fund for administrative costs and a Home Building Insurers Guarantee Fund as a safety net in case of provider insolvency.

HBC premiums are based on a number of factors including the category of work, builder risk and location.

Maintained consumer protections

The reforms maintain existing levels of consumer protection while permitting a wider diversity of products that meet or exceed minimum requirements.

More choice for builders and tradies

Private providers can apply to join the home building compensation market and offer competitive premiums and products.

Competition among providers is expected to give builders greater choice about the type of products they can buy, and who they can buy it from, while continuing to meet or exceed the scheme’s minimum requirements for consumer protection.

Better transparency for homeowners

From 1 July 2018, all builders are required to show the cost HBC cover in their building contracts.

Homeowners can confirm the validity of their HBC insurance policy – including any previous claims on the policy – through the HBC Check.

Certificates appear on the register within 24 hours of being issued.

Better regulation and monitoring

The reforms enhance the powers of SIRA to monitor and regulate the home building compensation scheme by:

• licensing private providers
• assessing and approving or rejecting premiums
• managing the performance of the scheme’s providers and regulating their financial and prudential positions
• issuing and enforcing HBC insurance guidelines with rules for premium setting, fees, market practices and claims handling
• using data collection and analytics to increase transparency and accountability, and competition and innovation
• operating the Building Insurers’ Guarantee Fund to provide a safety net for policy holders if a provider is declared insolvent.

Improvements to the home building compensation scheme complement other NSW Government reforms to promote a strong building industry.