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Thursday, 13 November 2008
Page: 20


Senator MILNE (11:14 AM) —I rise today to note the report from the Senate Standing Committee on Economics entitled Australia’s mandatory last resort home warranty insurance scheme. When I moved for this inquiry, on behalf of the Australian Greens, it was very clear to me that the privatised last resort home warranty scheme as it currently exists does not provide adequate consumer protection or building industry management in Australia. It was very obvious to the Greens that it is not working for consumers or the building industry and it should have been either abolished or fundamentally reformed. Therefore, I know that there will be hundreds of people throughout Australia today who are going to be devastated by what they will see as an extremely weak report that has not addressed the key issues that they wanted addressed. Once again, all of those builder and consumer advocate groups who have been fighting to get justice in this area for so long will see that the Senate has effectively shelved this and left it to yet more inquiries—because it is not going to go away. It will keep on going and it will continue to dog governments until somebody has the courage to deal with it. So I have to say that I am extremely disappointed with the report.

Even the Productivity Commission, in its review, commented on the large number of complaints it received about this particular insurance product. Its report noted the need for better consumer protection in the home building industry and the need for early stage consumer protection measures like improved dispute resolution and better linking of licensing with builder performance. One of the key aspects of last resort home warranty insurance that has been so unjust, as it has been applied, has been the power of the insurance industry and its brokers. The Housing Industry Association, acting as a broker, and the insurance industry have been able to determine who can and cannot build in Australia. That gives them incredible power over people. If anyone complains or if anyone does anything then there is the option of refusing them a licence.

Quite clearly, what you need to be able to do is to separate those roles and make sure that there is much better linkage of builder registration with the skills of the builder and the performance of that builder. That is what should determine whether people are registered as builders in this country. If a builder has had a poor record of performance or whatever else, that should be able to be seen and there should be a registration that links performance with licensing. Instead of that, builders’ licensing is directly linked to the power of the insurance industry and its broker. For many years, overwhelmingly that was the Housing Industry Association. I will go to that in more detail in a moment.

Choice magazine did an assessment of this insurance product and described it as ‘junk insurance’. I concur with that. I do not see that it provides any benefits to consumers or to the building industry. I completely disagree with the Senate committee majority recommendation in relation to the fact that it provides redress in some cases. In handling the two largest housing collapses in recent times—Beechwood Homes in New South Wales and Gumleaf Developments in Victoria—last resort home warranty insurance was bypassed. If indeed it provided the cover that it said it provided when a builder became insolvent, died or disappeared, then, since it was mandatory, it should have been the mechanism that was used in those cases, and it was bypassed. There was no evidence provided to the committee that this product actually provides any redress. This was the overwhelming view, particularly from the hearing in Sydney, where we heard that large numbers of people who have lost vast amounts of money are trying to take the insurance companies through the courts and so on to get the money that they thought they were entitled to under the terms of the insurance product.

To say that it should stay mandatory is, again, to continue the undue power and influence of the insurance industry and the Housing Industry Association in this particular market. I support what the Tasmanian government has done in making it voluntary. Interestingly, there is so much pressure on around this issue that even the Housing Industry Association came out during the inquiry and said it would support last resort home warranty insurance being made voluntary. It even supports it being made voluntary, but the majority of the committee did not see fit to take that into account, which I found very interesting. I do not believe that the insurance product should remain mandatory. It should have become a voluntary scheme. If insurance is any good, people will take it up. If it is going to be made mandatory then it has to deliver what people believe it is delivering, and that is to give consumers some insurance against claims of collapse and noncompletion and so on, which they expect when they are building a home.

There was overwhelming support, as the chair of the committee just reported to the Senate, for the Queensland model. That is a government backed model. We had lots of evidence before the committee from just about right around the country saying that that model worked very effectively and asking why it could not be duplicated around the country. It would not be viable, for example, to adopt a Queensland model as such in some of the smaller states, but you could expand the model so that everybody could access it. It would become viable in terms of the numbers if you did it across the country.

Just flick-passing this to COAG to look at issues of consumer protection is a guarantee that it will go into the ether for an endless period into the future. I am glad that there is a recommendation that issues around dispute resolution and consumer protection should go to COAG, but it is no guarantee that this will actually be dealt with. If anyone is interested to look at the Queensland scheme, it is auspiced under legislation up there. It does provide remedies for defective building works. It does provide efficient resolution of building disputes. It provides support, education and advice for those who undertake the building work and also for the consumers. It also regulates the industry to ensure that there is maintenance of proper standards and achieves a reasonable balance between the interests of building contractors and consumers.

I cannot see why we could not have recommended that the Commonwealth develop a framework to deliver the Queensland-style system across the country. The only assumption I can make is that there was not a view that state governments ought to auspice this and that it ought to stay in the private sector. We have seen how brilliantly the private sector has managed the insurance industry and the banking industry with the prime mortgage collapse. The failure of last resort home warranty insurance is another failure of the private sector.

The Greens recommended that we should adopt a national approach to the issue and rapidly move to a system based on the Queensland model of home warranty insurance. We recommended that the Commonwealth should design the scheme. It should be put through the COAG process and adopted in January 2010. Between now and 2010, the last resort home warranty insurance should not be mandatory and the Commonwealth should ask the states to deliver that through mirror legislation.

We agree, however, that any form of home warranty insurance should be included in the National Claims and Policies Database so that there is consistency with other insurance products and people can compare, at last, the profit ratio and the premium ratio to see what is going on. Also, if there are any loopholes currently in Commonwealth legislation that in any way exempt home warranty insurance from the proper regulatory oversight of APRA, ACCC and ASIC, legislation or regulation must be changed to close that loophole. This issue is not going to go away, and it is critically important.

We heard through the inquiry that the Housing Industry Association, a private company, is not a representative structure. It is not an industry association as its name suggests. It is a private company making a large amount of money. It is time that builders across Australia had a very good look at the Housing Industry Association because they do not seem to have any power to control what is a private company getting a large amount of money and in part because of this insurance product and its mandatory nature. So I would urge the government to reconsider its position in relation to this product and take a much stronger leadership role to get rid of last resort home warranty insurance as it currently exists in Australia.

Question agreed to.