Back in 1997, we saw the privatisation of the building industry consumer protection in Victoria and New South Wales under what can be termed normal insurance arrangements. Catastrophic events including the HIH collapse and 9/11 in 2001, however, resulted in a platform of uncertainty within the insurance industry but also an opportunity for those who were in a position to benefit from these terrible events.
As a consequence, we saw the introduction of a new mandatory consumer protection regime for NSW and Victoria on the first of July 2002 titled Builders Warranty Insurance (BWI), a ‘last resort’ product available to consumers only in the event of death, insolvency or disappearance (DLD) of the builder (and even then further conditions still apply).
This secretive product was concocted and the regime designed to manage the building industry. A builder has to satisfy its criteria to achieve insurance eligibility, which sees the assets of the builder exposed to an insurance company. This procedure is a pre-condition to activation of a builders’ registration/licence.
Following the advent of BWI, turmoil engulfed the industry in NSW and Victoria as builders were unable to obtain the warranty amid an environment whereby the duopoly of the insurer and broker represented an effective monopoly which was unable to provide the BWI in a timely manner. The financial stress associated with this draconian scheme saw long term businesses go to the wall and serious personal impacts.
These circumstances were real but the monopoly purveyors assured Governments that those who were complaining were the ones who did not have the financial ability to meet the criteria. It was this period that saw the purveyors of the product hold 92 per cent of builders to their books, according to the NSW Grellman report.
Fortunately, intervention by the ACCC saw the market opened to other insurers and brokers in 2006. Still, the product remained the same and the new players demanded further securities from builders. Consequently, even today, insurers hold multiple forms of security against builders, a phenomenon which most likely will be the subject of legal action.
As of today, we have seen 52 inquiries/reviews into the BWI product, five of which remain current. We have also seen CHOICE magazine claim the BWI regime is ‘making a mockery of consumer protection’ with policies that are "nothing but junk."
As a result, a number of governments are now questioning the value of BWI and are looking at ways of providing greater accountability in the system.
Tasmania dumped BWI in 2008, a decision which thus far has not seen any negative impact. Earlier this month, however, that state’s Workplace Relations Minister David O’Byrne announced the Government’s intention to review the building industry regulatory framework.
South Australia, meanwhile, is reviewing home building protections with the view to developing a long-term solution to the withdrawal of private insurers from the building indemnity insurance market.
Unfortunately, however, a review currently underway in Western Australia is failing to address fundamental issues relevant to consumers while the process of a review in the Northern Territory last year was shambolic and dismal.
Clearly, Last Resort Insurance does not work and is failing our industry. In every state and territory, we in the building industry are financing all consumer protection and are paying dearly to protect our consumers, yet we continually see our industry bought into disrepute through the lack of protection to our consumers and the failure of compliance systems.
It is time the concerns of both consumers and the legitimate construction industry are addressed. Builders and consumers work with each other each day and should be working with Governments to achieve sensible and appropriate protection that provides value and intended outcomes.
On a side note, the recent announcement by the Victorian Government removing the mandatory commercial defects insurance for commercial builders shows common sense and is welcome. However, it has taken nine years of lobbying by the Builders Collective to achieve its removal.