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Thursday, 13 November 2008
Page: 19

Senator HURLEY (11:03 AM) —I present the report of the Economics Committee, Australia’s mandatory last resort home warranty insurance scheme, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

Senator HURLEY —by leave—I move:

That the Senate take note of the report.

Senator HURLEY —This report is the result of a very long and complex inquiry. I thank Mr Geoff Dawson and the secretariat for their assistance in the inquiry to the committee and the participating members. Home warranty insurance is a very complex issue, and there have been many, many reports done at state and national level on this issue. We looked at a couple of main areas because there have been complaints by both builders and consumers about this form of insurance, and there is much misunderstanding on both sides of it.

I will provide a little bit of background about the insurance first of all. Home warranty insurance is in fact not really a warranty on the home at all; it is last resort insurance if the builder dies, disappears or becomes insolvent. So it is not a warranty against the work of a builder; it is only last resort insurance if that builder for some reason cannot complete the home. This insurance is taken out by the builder on behalf of the consumer. That also creates some misunderstandings. Builders’ complaints about it related to the fact that the insurance companies giving them insurance look first of all at the financial viability of the builder to ensure that, of course, the insurer is not left with a lot of liability and that they are not insuring a builder that is likely to go broke or disappear. Builders often claim that they have to give a high level of guarantee and that that is restrictive and deters builders from operating. From the consumer point of view, it can be very difficult to claim the insurance when they have to prove that the builder has become insolvent or has disappeared. There were many harrowing examples where consumers had spent a lot of time and money and been through various tribunals and courts trying to get this insurance triggered.

The committee was certainly very keen at the beginning, having seen these kinds of examples, to find some way through this dilemma of what we do about home warranty insurance. But, as so often is the case when you begin these inquiries, you discover that there are many layers of complexity in these issues.

I thank the many people who wrote submissions and/or gave evidence to our inquiry. We heard from many consumers and many builders and had very comprehensive evidence from the New South Wales government, who went through their regulation of the industry. In particular, we also heard from the Queensland government, who have a first resort kind of insurance which is run by the government and provides a warranty for building standards. It provides that warranty right through and also provides last resort insurance. That did seem to be a very good form of insurance. I think the committee was very impressed by the level of support given by the Queensland government to that.

The question was: should we recommend that kind of full insurance or some other form? The New South Wales government are putting in place many checks and balances to ensure that building standards are maintained in that state, and that is an ongoing process. In other states, the process is variable. In my own home state of South Australia, and indeed in Western Australia, we found that there were very few problems—that the scheme is in fact managing quite well. The consumer protections seem to be in place, and the last resort scheme is sufficient.

Considering those layers of complexity, we recommended that there be better data gathering, that there be better reporting of what insurers are doing and what kind of profit they make out of this insurance and that recommendations be put in place about a best practice for ensuring that there is consumer protection right through the building process as well as at the end. We recommended changes right through from changing the name of the insurance, which implies that there is some sort of warranty on a house being built by the consumer. It is really only a last resort policy in all states except Queensland.

A lot of the examples that we heard from consumers about problems in fact originated before the HIH Insurance collapse, which caused a great many problems because HIH provided a great deal of this insurance. That illustrates how long ago it was, because that collapse was in 2001, so a lot of those complaints have been carrying on since then.

Since then, the HIA, the MBA and other building associations have worked with state governments to get some form of insurance back up. One insurance company in particular has a large share of the market, and the HIA provides broking services for that insurer and others. There was some question about whether that was any kind of conflict of interest. The committee went into that in great detail and found that there was no conflict of interest there, that the HIA had a broking service at arm’s length and that that dealt independently with builders and with consumers in terms of this form of insurance.

The Tasmanian government has made this insurance voluntary rather than mandatory. The committee discussion was to the effect that we should keep a watching eye on that to see if the Tasmanian experience in a few years time is still positive and if that does not create problems for consumers where the builder does die, disappear or become insolvent.

We have recommended that mandatory last resort insurance be kept in place in order to provide some form of last degree protection for those consumers who are building a house. The committee kept in mind that it was the consumers’ interests that were paramount. For most people building a home, that is the biggest asset they will ever own. They invest not only a lot of financial capital but also a lot of emotional capital into it. We saw that from some of the evidence where things had gone wrong. It is not only a whole house, of course; often people do substantial renovations with the same effect. In the interests of those consumers, the committee decided that it was best to keep some form of last resort warranty in place in case of the builder disappearing. The actual cost of that insurance is not something that was raised in the inquiry, in that it is not a significant impost on the home builder in the scheme of things.

So, while wanting to keep a watching brief on that form of insurance and while being very keen to ensure that consumer protection from the start of the building process and the way in which the consumer is informed right through to the end is improved in all states, I certainly commend New South Wales for a lot of the efforts they have made and of course the other states and the ACT as well. In South Australia and Western Australia, there have not been a great many complaints about this form of insurance, and obviously the consumer protections are working adequately.