VIC: Dumped Warranty Insurance Good News for Consumers

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Tuesday, May 20th, 2014
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The recent announcement from Victorian state Finance Minister Robert Clark that the government in his state will drop the controversial Last Resort Warranty Insurance regime and that consumer protection arrangements will instead be governed under a new one stop shop system to be phased in via a two-stage process over the next 14 months is long overdue and more than welcome.

Under the new system, from July 1 this year, early mandatory intervention in a building dispute will be available to either the consumer or builder that will deliver a binding decision on the dispute.

The second stage implemented on July 1, 2015, meanwhile, will finally see the removal of Last Resort Warranty Insurance, which will be replaced with a statutory compensation fund.

This is common sense and something the Builders Collective of Australia has long been lobbying for.

Upon its inception in 2002, Last Resort Mandatory Builders Warranty Insurance was billed by its supporters as providing greater security to new home buyers and renovators following the turmoil associated with the HIH collapse.

In a press conference in Armadale in September 2003, for example, then Minister for Finance and Consumer Affairs John Lenders described the product as “the next step along in making builders warranty insurance affordable and available” and said the system would make it faster and easier for consumers to obtain insurance.

Since then, however, it has been fraught with criticism and has been the subject of no fewer than 51 reviews.

In 2004, for example, Choice Magazine said the system made a mockery of consumer protection.

Yet despite this, a change to Corporations Regulation 7.1.12.(2) in 2002 removed all regulatory oversight by any agency in the nation and has led to an absence of reliable performance data which has stymied efforts to change the system.

Over time, these arrangements contributed to a lack of accountability within the Victorian Building Commission and a decline in standards of regulatory enforcement within the industry.

The extent of this was laid bare in the Victorian Ombudsman’s December 2012 report, which found failures in the Commission’s inner workings including corruption, collusion and misuse of funds, inappropriate processes for builder registration, failures of governance and administration, and questionable recruitment of staff.

Moreover, these changes bring important benefits. Eligibility for cover under the new fund in the event that projects fail will provide greater certainty for consumers. Builders, meanwhile, will benefit from a single, integrated process for registration and from direct coverage of their projects by a regulator.

These benefits are significant. Under the old system, around 75 per cent of insurance premiums went to private insurers and their brokers, while the livelihood of builders depended upon satisfying an insurance company as well as a regulator.

The removal of the Building Commission and its replacement with the Victorian Building Authority last year was billed as a fresh start, and while we have seen some initial complications and setbacks, the recent announcement confirms that the new arrangements will deliver the standards of regulation the construction industry and its consumers need and deserve.

Builders in the first instance and consumers ultimately fund every cent of compliance, consumer protection and building industry management, and deserve better than what has existed since 2002.

The Builders Collective of Australia congratulates the Victorian Government for recognising the issues and the need for reform of a system that did not deliver for either the industry or the consumers we serve.

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