The home building compensation scheme cannot continue in its current form. It needs to become financially sustainable so it can continue to protect homeowners into the future.
What was wrong with the scheme?
The home building compensation scheme has been underfunded and has become a burden on all taxpayers. It does not operate as effectively or efficiently as it could. As a monopoly product, builders and consumers have had no choice of product or provider to suit their needs.
The NSW Government has been the sole provider of cover since private insurers left the market in 2010, and despite some improvements, premiums have not been sufficient to cover the costs of emerging claims.
By the end of the 2015/16 financial year, the scheme had unfunded liabilities of $375.8 million.
The video below explains the reasons for reform.
Benefits of reform
The reforms aim to ensure that premiums and other changes are adequate to cover risks to homeowners.
Financial sustainability will be improved by:
- giving us (the regulator) the authority to assess and approve premiums, or reject premiums deemed inadequate, excessive or otherwise not in accordance with the relevant guidelines
- allowing private sector providers to enter the market to encourage product innovation, choice and competition
- introducing the split cover option to allow for increased coverage for homeowners and better risk management
- allowing premiums to be calculated according to a builder’s individual level of risk
- establishing an operational fund for administrative costs
- establishing the Home Building Insurers Guarantee Fund as a safety net in case of provider insolvency
- a government funding injection
The reforms will complement changes made by the current home building compensation provider, icare hbcf, which introduced risk-based pricing, removed broker commissions and started raising premiums to cover expected costs in April 2017.
The reforms will maintain existing levels of consumer protection while permitting a wider diversity of products that meet or exceed minimum requirements.
For more information read What reform means for homeowners.
Private providers will be invited to 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.
More more information read What reform means for builders and tradies.
Builders will be required to show the cost of the home building compensation cover in their building contracts.
For more information see information What reform means for homeowners.
The reforms will enhance the powers of SIRA to monitor and maintain 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 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 Home Building Insurers’ Guarantee Fund to provide a safety net for policy holders if a provider is declared insolvent.
Other building industry reforms
Improvements to the home building compensation scheme will complement other NSW Government reforms that promote a strong building industry.
We will continue to work closely with co-regulators such as NSW Fair Trading to support effective industry regulation.
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.
History of reform