For insurers and providers

Private insurers and alternative indemnity product providers can now apply to the State Insurance Regulatory Authority to enter the home building compensation (HBC) market in NSW.

Reforms have created the opportunity for private sector participants to compete for market share with icare hbcf (which offers HBC cover on behalf of the government's own licensed insurer, SICorp).

Home building compensation cover remains a compulsory product for builders and tradespeople that contract to do residential home building work in NSW costing more than $20,000, such as new home construction (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.

Licensed insurers and providers will need to satisfy prudential or other conditions to be licensed. They will also need to apply to SIRA to obtain approval of:

  • home building compensation products that may be offered in NSW
  • the premiums they intend to charge.

A variety of products may be offered

Providers and insurers are encouraged to offer innovative products, which must meet minimum standards, but may include other features. For example, providers may offer products that:

  • cover additional risks
  • allow claims in additional circumstances (such as ‘first resort’ products), or
  • include services such as quality assurance checks of work, or management of progress payments or dispute assistance.

It is up to insurers and providers to decide whether to offer additional features and what they will include in their products. All products offered by insurers and providers are subject to SIRA approval.

Two types of cover

Licensed insurers and providers under the scheme may offer the following minimum cover.

1. Combined cover (current product)

A minimum of $340,000 cover will continue to be available for:

  • non-completion*; and
  • defects within the statutory warranty period.

2. Separate cover (new option)

Separate cover consists of two products:

  • 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.

Licensed providers may offer any or all of the types of cover. For each home building project, the builder or homeowner must have either combined cover or both separate cover products before starting work or accepting payment.

* 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.