The New South Wales government is seeking public feedback from homeowners and builders on the proposed reforms to the compulsory home building compensation insurance scheme (HBC scheme).

The consultation focuses on key proposals including changing the amount of insurance cover offered by the scheme and allowing homeowners to claim earlier in the dispute process. Other key reforms seek to explore:

  • Extending cover to victims of unlawfully uninsured home construction.
  • Updating the value of building work for which insurance is required.
  • Changes to the types of work that may be exempt from insurance, such as in high rise residential buildings.
  • Recovering costs from businesses and culpable directors that fail to insure work.

Homeowners and builders will be able to submit their insights through an online form or by sending an email to HBCreform@sira.nsw.gov.au until 16 August 2022.

Findings and recommendations by the Independent Pricing and Regulatory Tribunal (IPART) in December 2020 laid out how the HBC Scheme should be regulated and operated.

The State Insurance Regulatory Authority (SIRA) cited the IPART findings in crafting the discussion paper on the proposed reforms, which generally fall under key three themes:

  • Expanding some aspects of the scheme to better support some homeowners.
  • Narrowing some aspects of the scheme to lower the cost of some work on homes and reduce regulatory burdens or costs.
  • Reconsidering who should provide cover in the scheme and how they should be regulated.

Why reforms are being explored

The HBC scheme, which is regulated by the SIRA, protects homeowners as a last resort if their builders cannot complete building work or fix defects due to insolvency, death, disappearance, or had their licence suspended for failing to comply with a money order made by a court or the tribunal.

Currently, the NSW Government-operated NSW Self Insurance Corporation, trading as ‘icare HBCF’, is the only insurer offering insurance under the scheme.

According to SIRA, the HBC scheme was historically underfunded from July 2010 when it became government operated. Since 2017, however, reforms and premium increases were able to move the scheme to a sustainable financial footing.

Businesses in the residential building industry are required to buy home building compensation insurance for each project they do over $20,000 as a principal contractor. They can only do so if they satisfy an insurer’s eligibility criteria.

Over the financial year 2020-21, 20,133 businesses were eligible to insure their projects while 88,270 projects were insured. Over the same period, the HBC scheme received 1,078 notifications of insured loss and 492 insurance claims.

Minister for Customer Service and Digital Government Victor Dominello said there is a need for an effective insurance scheme that would provide better support for homeowners.

“SIRA’s discussion paper proposes a range of reforms that offer clear steps to strengthening the scheme’s support for homeowners when their dreams don’t go to plan,” he said.

Mr Dominello said company failures have been proportionately higher in the construction industry compared to other industries — in fact, almost a quarter of total company insolvencies in NSW in 2021 were in the construction space.

“Home-building compensation is a complex insurance scheme which involves managing insolvency risks in an industry where those risks are inherent and longstanding,” Mr Dominello said.

“As a result, the scheme was run at a loss for many years and has had a chequered history ever since the collapse of HIH Insurance in the early 2000s.”

Photo by @inkyhills on Unsplash.