Enough is Enough: BWI Must Go 9

Monday, April 25th, 2016
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Top not-for-profit consumer advocacy group CHOICE has come out with a scathing rebuke of builders warranty insurance (BWI).

The group states this insurance is the worst insurance product in Australia and it provides little more protection on the purchase of a home than most people would get on the purchase of a blender.

So why would any government retain such a controversial product of virtually no value, and then have the audacity to present it as consumer protection?

Morality, compassion, and integrity are great elements, but they don’t exist when it comes to builders warranty insurance.

Since 2002, there have been dozens of inquiries into BWI and its failure, yet governments provide more spin and retain this shameful product in spite of fierce opposition from all quarters. Opponents now include the insurance industry itself, which said this week the product is fundamentally flawed.

BWI has hurt thousands of consumers and builders alike – many without justification – as the farcical merry-go-round of BWI despair spins in place, leaving a trail of broken homes, financial ruin, depression, and a feeling of hopelessness for those it consumes.

Democracy is a wonderful ideal, but it does not exist within the BWI regime; small business builders suffer under as BWI controls the size of their businesses by capping their annual turnover and what size building project they may undertake.

So where is the upside of BWI that allows governments to retain a product that is now condemned by so many? The very reason this product exists is to deliver the necessary consumer protection under the government’s own Public Policy as well as manage the industry for and on behalf of the registrar of builders in each state.

The Last Resort scheme was intended to manage our industry, ensure the removal of questionable builders and stem the insolvencies, but the reality is this scheme is a dictatorship and there is no evidence it has met its mandate.

BWI has failed on every level over the past 14 years, and now we have reviews in every jurisdiction and every player condemning the product while the various agencies and authorities try and fiddle yet again. This will likely see its ongoing failure yet and prolong its eventual removal.

BWI and/or any of the fancy name changes that have been applied are unsustainable and this BWI product must be removed in its entirety.

So why do they fiddle with such an important issue?

Because the same bureaucrats and trade associations that introduced the BWI in 2002 remain in the same positions today, and the dollars are far too attractive to those who benefit financially from its being.

Further, Joe Hockey changed the Corporations regulation in April 2002, effectively making BWI totally unaccountable and completely secretive. This was the start of the rot setting in, where in Victoria there has been corruption, collusion and maladministration on a grand scale, as exposed by the Ombudsman.

The effect of this approach has taken our once-proud industry on a downhill slide into disrepute and a loss of integrity and honesty, and the legitimate industry have been voiceless and helpless to arrest the slide.

The trade associations have become powerful to this point and they present as our voice to governments, but they are seriously conflicted and hold industry dissent at bay even through the BWI regime that threatens a builders livelihood.

For an industry to be effectively managed and deliver appropriate consumer protection, that management must fully understand the industry it is charged with managing. That’s where the problem exists, as the managers that currently exist do not fully understand the industry, the outdated culture of the past years remains and the complete management regime is devoid of industry participants.

This complete lack of expertise and understanding has cost the wider building industry on a scale that is unimaginable and the cost is unaccountable, as it would run into billions of dollars.

The galling aspect of this scheme’s retention is the cost financially, and emotionally to real people whether they are a consumer or a builder, and this is where governments have failed our wider industry completely.

Enough is enough.

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  1. David Chandler

    Phil, you must feel like one hand clapping on this subject at times. But keep it up. I see no way that governments will legislate any time soon to rectify this problem as there are too many self interests. The challenge is raising the standard for all is an impossible task. Minimum and deemed to comply standards are just that – a minimum. It creates a culture of near enough is good enough – at the margins. Construction is going into an incredibly transformative stage. New materials, new construction methods and buildings being made from inputs form many, many sources. Increasingly imported. The major materials providers are happy with this status quo as well. They make it clear that their product warranties are void if they are wrongly designed or incorporated into a project. The consumer is left out in the cold when the compilation of warranties and self-certified compliances add up to less than the full deal. Home owner warranty insurance is designed for the lowest common denominator. I wonder when a number of first mover disruptors will see the opportunity here. They would organise their business models to deliver in full and with a meaningful underwrite. The insurance industry should be open to these disruptive models as they will eventually command the major market share. Businesses designed on best practice rather than minimum standards. I can already hear the calls – that is an academic view. Thats fine but organisations that have gone down these transformative paths do so smarter, better, faster, SAFER, and cheaper. Thats the QA experience of the Motorolas', the Toyotas', the Apples the list is endless. Getting rid of systemic inefficiency and non-compliances can reduce costs by 20 – 30%. With better warranties

  2. Brett Bates

    "The Last Resort scheme was intended to manage our industry, ensure the removal of questionable builders and stem the insolvencies" ,This statement should be the nucleus of any discussion on the need to provide an insurance scheme for the building construction sector . So how do you stop the growing cohort of 'questionable' builders who are the ones generating the defectively constructed, mismanaged and non-economically viable projects that they can freely walk away from that the insurance component is supposed then to take care of.
    Well here's a novel idea. How about putting a system in place that makes damn sure those people NEVER GET A BUILDERS LICENCE IN THE FIRST PLACE?
    It seems like a patently obvious solution that seems to work okay within the medical and other professions. Unfortunately our federal and state governments comprehensive and continued failure within the Vocational Education and Higher Educational training combined with the abject failure of COAG to pursue and implement a national high quality standard of builder licensing accreditation is facilitating the exact opposite outcome. It is not a clever counntry by any measure.

    • Bruce Haines

      Agree Brett, the problem with the Building Industry, which is getting worse, is the lack of training in part a result of abolishing TAFE training and putting it into the hands of private training organisations. Having worked previously for a state government building regulator and a brief 10 week stint for a private training organisation I have seen the both cause and effect of the poor training in the building industry.
      But now I make money out of idiots in the Building Industry by way as an expert witness, I say keep up the poor training and relaxation of licensing requirements.

  3. Anne Paten

    BWI was not a consumer protection product. 'LAST RESORT' insurance was introduced in 2002 as 'NO RESORT' insurance. The Actuarial Genii's limited DDI triggers performed as projected – REWARDING all building interests and totally failing most consumers.

    Despite Percy Allan's warning of the harm to consumers (remember he called 'First Resort' a "CRUEL HOAX"), it has remained for 14 years. As Allan predicted, it has seriously damaged millions of consumers over that period – with only 99% able to claim on their 'policies'!

    Never meant to 'protect consumers', BWI was introduced quite deliberately to "double builders' incomes" and to force consumers to DONATE Millions of dollars each year to insurer and insurance broker beneficiaries (HIA and MBA). This purpose is explained clearly in the Media Release of the time. Key players John Lenders (Consumer Affairs Minister), HIA's Ron Silberberg and Royal & Sun Alliance's Nick Kirk were all overjoyed with having crafted 'Last Resort' . Aided by the Building Commission's Jeff Norton and Lenders, the fake insurance led to HIA, Royal's and others financial fortunes skyrocketing.

    Phil is right on how many millions of consumers have been hurt – but as for builders, the new 'assessment' introduced in 2002 provided the unscrupulous with carte blanche to do as they pleased – to play ragdoll with consumers, their buildings and lives. As to dropping this rort insurance, of course consumers agree! But it must be replaced with GENUINE insurance, whereby when the rogues run away, owners can make a claim and be paid! After all, that is supposed to be the point of 'insurance'; its very definition is: a "GUARANTEE OF COMPENSATION FOR SPECIFIED LOSS". It's time for owners' voices to be heard!

    • Amir Taefi

      Anne. Your convoluted and uninformed comment about builders and building organisations benefiting from BWI is a testament to the notion that a little knowledge can be very dangerous.

    • Mark Whitby

      Too right Anne, And I know you meant only 1% can claim on their policies… and not 99%.

  4. Bruce Haines

    I can't speak for other states, but in Qld, yes it has it's flaws, but what is the alternative? We would see the bankruptcy of many consumers as a result of poor building practices if it were abolished. Is that a fair alternative?
    I have one young couple with a subsidence claim which will probably max out the claimable amount of $200,000 and also have a retired couple with a claim that will be around $120,000 at the moment. If the HWI were abolished, these people would need to pay for these repairs themselves, as both builders involved have put themselves into bankruptcy.
    Think of the consumer backlash if people were made to fend for themselves.

  5. beverley-jane

    Unscrupulous, greedy insurers keep insuring our disgusting builder, despite his shocking track record and multiple claims against his work.
    Neither the insurers or HIA were ethical enough to put a stop to the damage he was inflicting on families!
    Then of course we have the so called regulators who are no better. Fully aware of his track record, successful BWI insurance claims, liquidation and THEIR OWN 630 page defect report on our nightmare home and they were quite happy offering him ongoing registration!
    Despite numerous components being acknowledged as defective by the installers, suppliers and manufacturers, we could not force replacement or repair, under the 12 month statutory warranties the government state is every consumers legal right. Conveniently they would not meet their obligation unless the builder, the original purchaser, instructed them to do so! Useless, time wasting Consumer Affairs Victoria said their was nothing they could do! You have more protection when buying a kettle!
    The regulators warn consumers to 'check their builder's registration' as their first port of call when risking their financial well being to build a home for their families! What the hell for if they and the insurers keep on insuring and registering dishonest, incompetent conmen?
    All concerned show an immoral penchant for grabbing every dollar they can while reinforcing a criminally negligent industry, showing no duty of care or concern for the families they are mentally, physically and financially destroying along the way!

  6. Anne Paten

    A correction to my comment below. ONLY 1% of owners can claim under BWI – comment should read: "WITH 99% UNABLE TO CLAIM ON THEIR POLICIES!"