The Latest Renovations to the Homeowners Warranty Insurance Scheme

Over the recent years the NSW Government has made a number of wide-ranging reforms to the home building industry. On 15 December 2004 the NSW Parliament passed the Home Building Amendment Act 2004 (NSW) amending the Home Building Act 1989 (NSW). On 29 April 2005, many of the provisions commenced, including the establishment of a new governance structure regulating home warranty insurance providers as well as fine-tuning certain insurance reforms.

The purpose of the changes have been to provide:

Greater consumer protection
Stabilised entry into the market of new home warranty insurance providers
Greater accountability on the part of insurers
A more transparent and efficient scheme for consumers and traders

The Home Warranty Insurance Scheme: A Brief History

Since its inception on 1 May 1997, the home warranty insurance scheme has experienced a series of makeovers. The following is a brief history of its evolution:

May 1997

The home warranty insurance scheme was established under the Home Building Act 1989 (NSW). Private insurance companies were required to provide home warranty insurance cover for seven years for breach of “statutory warranty”, such as defective or incomplete work. All builders and tradespeople in NSW were required to provide a home warranty insurance certificate to the homeowner for residential building work valued at over $5,000.

1 April 2002

The threshold for tradespeople to provide a home warranty insurance certificate to the homeowner was increased from $5,000 to $12,000.

1 July 2002

Private insurance cover was reduced from seven years to six years for structured work. The home warranty insurance scheme allowed claims to be made for loss caused by factors such as structural defects or incomplete work where the contractor has become insolvent, disappeared or has died.

31 December 2003

Home warranty insurance cover no longer required for construction of multi-storey buildings.

Recent Amendments

The Birth of a New Board

The new provisions create a new statutory body, the “Home Warranty Insurance Scheme Board.” The board is to comprise of high-level specialists who provide advice and oversee the development of the new regime for home warranty insurance.. The board’s duties include advising the minister on the operating conditions for insurers as well as monitoring the overall performance of the home warranty insurance industry.

Opening the Insurance Information Portal

From 29 April 2005, subject to approval from the Home Warranty Insurance Scheme Board, the Minister will be able to enter into insurance “Industry Deeds” with home warranty insurers. The deed is designed to provide a guideline for the conduct of the particular insurer’s home warranty insurance business ensuring both parties’ commitment to the scheme. The purpose of these new provisions is to both energise and regulate the entry of new home warranty insurance providers into the market.

The amendments also include provisions allowing the exchange of information between the Office of Fair Trading and insurers relating to the business, commercial, professional or financial affairs of applicants for home warranty insurance. Insurers are to provide information relating to their business operations, individual builders as well as claimants. This provision will still, in theory protect the disclosure of certain information such as trade secrets or information of commercial value.

Despite protests from a number of builders’ industry bodies, the Government deemed the new information portal necessary for effective dispute handling and protection of the public against unscrupulous traders. The proposed system was also designed to enable insurers to provide builders with more appropriate insurance considering their financial situation and intentions.

Annexure of Home Insurance Certificate to the Contract for Sale of Land

From 29 April 2005, you will need to obtain a valid home insurance certificate indicating the existence of a home warranty insurance policy for any ‘residential work’ carried out.

It is best to obtain this certificate before the work is carried out and attach a copy to your contract for the sale of land. It is of utmost importance to annex a copy of your home insurance certificate to your contract for the sale of land, as failing to do so may render your contract void.

The recent amendments do, however, allow flexibility in situations where you may have not annexed your certificate of insurance. The new provisions are designed to protect consumers against uninsured building work while being fair to developers, builders or owner-builders in the event of slight oversights. Under the new provisions, contracts without the insurance certificate annexed will still be valid provided you have proof that you obtained an insurance certificate before you entered the contract. Your contract may also be valid if you have only delivered a copy of the insurance certificate to the purchaser’s solicitor before completion of the contract.

The amendments currently relate to contracts for sale by owner builders and persons who have carried out ‘residential work.’ However, this requirement may also extend to developers in the future.

Fine-tuning for the future

The recent amendments to the home warranty insurance scheme seem more evolutionary than revolutionary. However, the changes are nonetheless designed to ensure your home is insured at the right place at the right time, and most importantly, by the right insurance body.

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