Insurance and Care NSW (icare) has clarified the scope of what it does, following renewed criticisms surrounding its Home Building Compensation Fund (HBCF).
Last month, the government-operated icare HBCF was criticised for its new distributor panel which an Insurance Business source believed was going to cripple brokers who didn’t make the trimmed roster. Only those on the panel – which was slashed from 23 to nine – can offer builders’ warranty insurance in New South Wales from April 30.
When the line-up change was lambasted, icare defended the home building insurance scheme by highlighting the fact that its counterpart in Victoria only has six approved brokers - while that in Queensland has zero. It also cited improved service for builders and homeowners as among the intended results of the move.
Now HBCF is once again under the spotlight, following a newspaper report that likened the scheme to a leaky boat. Sentiments centred on faulty work by vanishing builders and loss-driven premium increases, as well as rising home prices.
An icare spokesperson, in a statement sent to Insurance Business, said: “icare is a provider of Home Building Compensation Fund insurance and operates within the regulatory framework set by the NSW State Insurance Regulatory Authority (SIRA). icare does not have any role in regulating the building industry or in policy setting.
“The NSW Government introduced significant reforms to HBCF in 2017 with the aim of making the scheme financially sustainable. Since the reforms were introduced, icare, as a provider in the scheme, was able to make significant changes to our operations to drive better outcomes. We expect to reach sustainable premiums by July 2021.”
Last year, the Independent Pricing and Regulatory Tribunal (IPART) conducted a special review of home building compensation in New South Wales and found the need for certain changes.
“Our final report makes recommendations that would reduce the average value of claims on the scheme; make it easier for new entrants to compete with the NSW Government insurer icare to offer home building compensation; ensure faster dispute resolution between homeowners and builders; and regulate icare’s prices and service more tightly, given its position as the main provider in the market,” noted IPART, which submitted its findings to the government in late 2020.
“Currently, premiums add more than $4,000 to the cost of building an average $350,000 home, or $16,000 to each low-rise apartment of the same value. This is higher than premiums for similar schemes in other states.”
At the time, the tribunal pointed out that making it easier for providers to enter the market would not only give greater choice but also put downward pressure on premiums.
IPART conceded, though: “However, as icare is likely to remain the only HBCF provider in the market in the short term, we also recommend additional regulation to ensure its premium prices and business practices reflect those that a commercial provider would adopt in a competitive market.”
At present, homeowners are provided up to $340,000 of cover if their builder cannot complete a project or rectify defects because of licence suspension, insolvency, death, or if they are nowhere to be found.
In IPART’s view, defects are less likely to occur in the first instance if builders know they will be held accountable, and it backs initiatives to enhance compliance and enforcement and believes efficient mechanisms are needed when things do go wrong.
“In the longer run, fewer defects would lead to fewer claims and lower premiums,” asserted the tribunal.
Meanwhile icare does not oppose IPART’s findings.
The insurer told Insurance Business: “icare welcomes the IPART report and supports any recommendations which will deliver a better outcome for consumers and the industry. We look forward to working with SIRA and the NSW Government to strengthen HBCF insurance.”
Additionally, icare explained that the $714 million in liabilities referred to in its annual report represents the potential cost over the next decade if claims for historically subsidised policies between 2010 and 2017, as well as policies that benefited from icare staging the price increases over four years, are realised.
It also stressed that claims have not tripled in the last three years – with the total number of claims lodged in 2017 at 386; 427 in 2018; 557 in 2019; and 581 last year.
“In 2015, fire safety and waterproofing were added by the NSW Government under the definition of major defects (they were not previously included),” icare went on to note. “The expansion of consumer protection for these defects has accounted for some of the increases in claims we have seen since then.”
