The reforms will mean that you'll have more choice in the type of cover and products available to you.
What won’t change
If you are a builder or tradesperson, you will still:
- need to get home building compensation cover for residential building work in NSW costing more than $20,000, such as new home constructions (including multi-unit buildings of three storeys or less) or home renovations
- be able to use a broker to access these products
- need to give a certificate of insurance to the homeowner before starting work or accepting any money, including a deposit.
Failing to have cover will continue to be an offence under NSW law.
The minimum standards for cover will stay the same: it must cover homeowners if their builder cannot complete building work or fix defects because they have become insolvent, died, disappeared or had their licence suspended for failing to comply with a court or tribunal order to compensate a home owner.
What will change
More choice of providers
Private providers will be invited to apply to join the home building compensation market and offer builders competitive premiums and products. Currently you can only buy one product from a single monopoly provider operated by the NSW Government, icare hbcf. In future you may have the choice to buy different products from different providers.
Providers, premiums and eligibility to be regulated
Only providers that have a licence from the State Insurance Regulatory Authority will be allowed to offer home building compensation cover.
- be able to prosecute insurers if they offer cover without a licence or if they or their intermediaries engage in false or misleading conduct about the cover
- require licensed providers to seek our approval for the premiums they intend to charge builders, to ensure premiums are adequate to cover the relevant risks, but not excessive
- independently set the builder eligibility standards that all providers must use, including icare hbcf. We will also consult with the building and insurance industries as part of the process to set these standards.
A wider variety of products to choose from
The government will encourage licensed providers to offer innovative and alternative products to builders.
Providers will only be allowed to offer builders products we have approved. Products may include insurance or alternative indemnity products such as fidelity fund schemes.
Products must meet minimum standards, but will also be able to include other features. For example, providers will be able to offer products that cover additional risks or allow claims in additional circumstances.
Providers will be able to offer products that include services such as quality assurance checks of work, or management of progress payments or dispute assistance. It will be up to licensed providers to decide what product features they want to offer builders.
Providers will also be able to offer a new option of 'split cover' that separates non-completion risks from the risks of defects in the warranty periods.
This means builders have the opportunity to choose between the following types of cover:
A minimum of $340,000 in combined cover will continue to be available as a single product for:
- non-completion*; and
- defects within the statutory warranty period.
Split cover is a new way that cover can be offered to builders.
It separates the cover into two products:
- construction period cover that helps consumers complete their home and deal with any associated defects in incomplete work; and
- warranty period cover that helps home owners deal with any defects after the work is complete.
If you choose the split product option for each home building project you do, you must have both split cover products before starting work or accepting payment.
Under split cover, the total cover for the home owner is doubled to a minimum of $680,000, including:
- construction period cover, with a minimum of $340,000 for the risks of non-completion* and associated defects during construction
- warranty period cover, with a minimum of $340,000 for the risks of defects after completion.
* Cover for non-completion is only required to cover the deposit if no work has started or 20 per cent of the contract price for partially completed work.
With split cover
If you take out split cover, you must buy both types of cover for each project. Partial coverage will be an offence.
Homeowners may like split cover because it increases the total amount of cover for their home building project.
Costs of cover shown in building contract
You will need to declare the cost of the home building compensation cover in the building contract. This will ensure that the cost is clear to the homeowner when entering into the contract.
When will the reforms be implemented?
The NSW Parliament has passed new laws needed to implement the reforms.
We are now designing the details for how the scheme will operate. We will seek industry and public feedback about new guidelines and regulations to support the scheme in the second half of 2017. Insurers and providers will be able to apply to us for a licence to sell home building compensation products in 2018.
The following video explains what the reforms mean for builders:
The reforms to home building compensation will complement administrative changes that are being made by the government’s home building compensation insurance provider icare hbcf, as well as other reforms across the building industry, including: