Home Building Compensation reform consultation - outcomes and next steps
SIRA recently consulted on a discussion paper about 15 potential regulatory reforms to the home building compensation scheme, arising from an Independent Pricing and Regulatory Tribunal review of the scheme, as well as some other scheme reform ideas. The ideas fell under three themes:
- Expanding some aspects of the scheme to better support some homeowner.
- Narrow some aspects of the scheme to lower the cost of some work on homes and reduce regulatory burdens or costs.
- Reconsider who should provide cover and how they should be regulated.
SIRA received 119 stakeholder responses to the discussion paper, including from builders, homeowners, industry associations, the legal profession, housing providers and others. The non-confidential submissions are available to view.
What happens next
SIRA will:
- provide recommendations to the NSW Government about whether to draft amendments to the Home Building Regulation 2014 to implement some reforms to insurance cover and insurance exemptions (Reforms 3-5, and 9-10)
- include provisions to cap premiums for high value projects in draft insurance guidelines that SIRA will release before the end of 2022 (Reform 7).
The balance of remaining reforms will not be progressed at this time. The majority of these require the passage of legislation that cannot be done before the final sittings of the current Parliament before the 2023 NSW state election. SIRA will prepare further analysis on these matters, informed by the stakeholder submissions received, for decision by the Government after the 2023 election.
Summary of stakeholder feedback
Theme 1 – Better supporting homeowners
Reform idea 1 - Cover victims of unlawfully uninsured home construction
There is no consensus among stakeholder groups about whether the NSW Government should support this reform. Most homeowners support the reform, but most building and insurance industry stakeholders oppose it. If the reform were adopted, stakeholders have differing views on how it should be designed.
Reform idea 2 – Allow claims earlier in the building dispute process
There is no consensus among stakeholder groups about whether the NSW Government should support this reform. Most homeowners support the reform and building, insurance, and legal industry stakeholders are more divided in their views.
If the reform were adopted, stakeholders' have differing views on design elements, such as removing cover for associated loss and reducing the timeframe for claims. Some stakeholders are concerned the reform would result in higher premiums.
Reform idea 3 – Update the minimum insurance cover amount
There is support from building industry stakeholders and homeowners for the NSW Government to increase the minimum cover amount. Some stakeholders’ support is subject to the cumulative impact on premiums of the final mix of reforms adopted.
Homeowners, government agency, building, insurance, and legal stakeholders prefer three to five yearly reviews of the insured amount.
Reform idea 4 - Increase cover for non-completion claims
There is no consensus among stakeholder groups about whether Government should support this reform. There is support from homeowners, insurance and legal industry stakeholders to increase the cover amount. Most building industry stakeholders oppose an increase.
Some stakeholders support an increase, subject to impact on premiums, including cumulative impacts of final mix of reforms to be adopted.
Reform idea 5 - Publish insurance exemptions granted by SIRA
There is broad support from stakeholders for SIRA to proceed with publishing a public register for exemptions.
Theme 2 – Housing affordability and regulatory burdens
Reform idea 6 - Update the threshold for requiring insurance
There is no consensus among stakeholder groups about whether to increase the threshold. Most building and insurance industry stakeholders support an increase, and most homeowners oppose it.
Other views raised include:
- That SIRA consider an alternative threshold to require insurance if work needs a ‘building approval or permit'.
- The benefits be considered against the cost of technology and eligibility process changes icare must make to implement such a change.
- Concern about consequential impacts on the calculation of insurance cover for work on Class 2 buildings.
Most stakeholders prefer three to five yearly reviews of the threshold.
Reform idea 7 - Opt-outs or premium caps for high value projects
There is no consensus among stakeholder groups about whether to ‘cap’ the insurance amount or allow opt outs, but ‘caps’ have broader support out of the two options.
Building, insurance industry and legal stakeholders are concerned about the impact of ‘opt-outs’ on subsequent homeowners and support further analysis of cost impact for capping.
Reform idea 8 – Broader insurance exemptions for high rise buildings
There is no consensus among stakeholder groups about whether renovations and alterations to high rise buildings should be exempt from insurance. More building industry stakeholders support than oppose the idea and most homeowners oppose the reform idea.
Reform idea 9 - Insurance exemptions for some housing services
More building industry and homeowner stakeholders support the reform than oppose it. Some stakeholders’ support is subject to ensuring the exemption does not create a gap in consumer protection.
Some stakeholders have differing views on reform design, for example:
- some support limiting the exemption to work done for certain types of housing providers and charities
- some oppose tying exemptions to conditions of planning consent or restrictions on land use or sale,
- suggest requiring insurance to be purchased if the properties are sold during the warranty period.
Reform idea 10 - Insurance exemptions for local government when developing housing on council owned land
There is no consensus among building and insurance industry stakeholders and most homeowners oppose it.
Some stakeholders are concerned about a reduction in consumer protection if a property were sold before the expiration of statuary warranty periods and prefer exemptions for council developments to be confined to social and affordable housing.
Reform idea 11 - Premium refunds or exemptions for ‘build-to-rent’ schemes
Most building industry stakeholders support providing refunds and exemptions.
Some stakeholders are concerned that if dwellings in ‘build-to-rent’ schemes are eventually sold, home-buyers would not have insurance for any renovations or alterations that were done to prepare the property for sale.
Reform idea 12 - Repeal provisions that regulate former scheme insurers
Most stakeholders that offered a view are supportive of repealing provisions that regulated former scheme insurers. Some former scheme insurers have confirmed to SIRA that they are still managing some home warranty insurance claims that are yet to be finalised.
Theme 3 – Providers and how they are regulated
Reform idea 13 - Reform or repeal provision for ‘alternative indemnity products’
Most stakeholders that offered a view on this reform:
- oppose allowing discretionary alternative indemnity products to operate in the scheme
- support instead removing provision for alternative indemnity products.
Reasons offered by some stakeholders included:
- discretionary funds are unlikely to provide consumers with sufficient level of protection
- it is not feasible for fidelity funds to operate in the NSW market
- provisions for fidelity funds further serve as a disincentive for private insurers to enter the market
- the scheme should be limited to providers who are prudentially regulated.
Reform idea 14 - Whether to legislatively amend SIRA’s functions to regulate icare HBCF
Most stakeholders that offered a view support this reform.
Some stakeholders commented they support measures that will improve transparency of regulatory decisions including a requirement for SIRA publish statements about its decisions.
Reform idea 15 - Whether to refocus of the regulatory regime to a single, State-insurer model
More building industry stakeholders support the reform than oppose it but there is no consensus about whether the NSW Government should shift the regulatory framework back to a monopoly Government insurer.