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What reform means for homeowners

The NSW Government’s reforms will maintain the high levels of protection that are currently available to you.

What won't change

Cover remains compulsory

Builders must continue to buy home building compensation cover before starting work or accepting payment.

Home building compensation cover will remain compulsory for residential building work costing more than $20,000, such as new home constructions (including multi-unit buildings of three storeys or less) or home renovations.

As a minimum, 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

Homeowners will be better informed

You will be able to view the cost of the home building compensation cover in the building contract.

Incentives to reduce risk

Premiums are being priced according to risk to encourage better practices among builders and help protect homeowners.

Opportunities for better cover

The reforms will create the opportunity for new products with greater coverage or that offer a wider range of options or features.

There will now be two types of cover

1. Combined cover (current product)

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.

2. Split cover (new option)

Split cover is a new way that cover can be provided.

It separates the cover into two products:

  • construction period cover that helps consumers complete their home and deal with any defects in incomplete work; and
  • warranty period cover that helps home owners deal with any defects after the work is complete.

The split cover can come from different providers, but builders must buy both split cover products to protect each home building project.

Under split cover, the total cover 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.

Under split cover, non-completion claims do not reduce the amount of cover available to home owners if defects in the original builder’s work become apparent after the work has been finished by a new builder.

As each product must provide a minimum $340,000 cover under split cover, the full $340,000 will be available to homeowners during the warranty period regardless of whether they have previously claimed for non-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.

Insurers and providers will also be able to offer other features and options as part of home building compensation products, as long as they meet or exceed minimum standards. This could include additional circumstances when claims may be made, cover for additional risks, or services such as site inspections. It will be up to insurers and providers to decide whether to offer additional features and what they will include in their products.

When will the reforms be implemented?

The NSW Parliament has passed laws needed to implement the reforms.

We are designing the details for how the new scheme will operate. We will seek industry and stakeholder 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.