Home Warranty Insurance

HIA’s Position Statement

1. HIA opposes mandatory Home Warranty Insurance (HWI).
2. Where HWI is mandatory: 
   • It should apply to all residential building work subject to there being a competitive insurance market.
   • A consumer should be able to waive the requirement to provide HWI. Standard information and disclosure statements should accompany consumers opting out of the statutory scheme.

Product structure where HWI is mandatory

3. The insurance product should provide:
   • A completion guarantee limited to residential building work involving structural work.
   • A rectification guarantee for five years limited to major structural failures in a new home or extension.
   • Limited liability for the rectification of minor defects based on contractual obligations.
   • Optional post-completion warranty insurance to cover non-structural defects.
4. High-rise residential building projects should not be required to insure against risk of non-completion. There is no non-completion risk as the ownership of the property does not pass to the homebuyer until the project is completed.
5. Spec builders and developers should only have to arrange the rectification guarantee prior to the title of the property being passed on to a consumer. 
6. The approval or renewal of a builder’s license or registration should not be subject to having HWI eligibility.
7. The operation of all schemes should be subject to statutory requirements as outlined by the Australian Prudential Regulation Authority (APRA) and the Australian Securities Investment Commission. Fidelity Funds and other forms of discretionary trusts provide unnecessary and significant risk to consumers when compared to an APRA regulated insurance product.
8. Directors of building companies should not have to provide a personal guarantee. Should a director choose not to provide a guarantee, any associated premium increase would only be by that amount which reflects the increased risk associated with the refusal to provide such a guarantee.

HWI, disputes and claims

9. An insurer should be precluded from subrogating the rights of the builder during the dispute resolution and hearing processes before the court or tribunal.
10. Subject to robust dispute resolution mechanisms that are consistent with the HIA Policy Dispute Resolution where mandatory, a claim for HWI can be made:
    • when a license or registration has been cancelled due to a failure to comply with a court or tribunal order; and
    • the consumer has proven to the court or tribunal that they have exhausted all legal methods of enforcing the order.

Background

• In all jurisdictions except Tasmania Home Warranty Insurance (HWI) covers the owner of a new home or renovation work on an existing home (either the original or subsequent owners) against:
• Non-completion of a home building contract due to death, disappearance or insolvency of the builder
• Failure of the builder to correct defects which are deemed by the law to be the builder’s responsibility during a nominated warranty period after the building work has been completed. These contingencies can generally be described as poor workmanship, faulty design, and inadequate or unsuitable materials, and insurance is only triggered by death, disappearance or insolvency of the builder.
• In jurisdictions (but Tasmania) HWI is mandatory - the builder must take out the insurance before either signing a residential building contract or starting residential building work. It is also 'last resort' in all jurisdictions apart from Queensland - i.e. a claim can be made only if the builder is dead, disappeared or insolvent. Queensland has a 'first resort' scheme in which that limitation does not apply.
• HWI is only one part of a complex consumer protection regime for residential building work which also includes requirements for building permits, progress inspections, practitioner licensing and mandatory contracts.
• HWI does not apply to residential apartment buildings of more than 3 storeys. It was a mandatory requirement until 2001 when the HIH collapse led to its unavailability.
• HWI is misunderstood and often considered to be a tool for dispute resolution rather than what it is intended to be, which is a safety net for non-completion of building work and for rectification of work when a builder no longer exists.
• Through underwriting standards warranty insurance schemes function as a quasi-regulatory device to limit a builder’s ability to trade. Given its significant impact on building businesses each scheme must be ‘fit for purpose’. Currently they are not.
• The lack of competition in the HWI market is problematic and the private sector must be encouraged to re-enter the warranty insurance market. Overwhelmingly various reports and inquiries have recommended that warranty insurance schemes be run by the private sector. Competitive pressure is the best way of delivering the most cost-effective outcome for the home buying public.
• The current design of the HWI product must be reformed. Requirements for mandatory personal guarantees, long defect periods and problematic insurance claims triggers must be revised. This would not only support a competitive market but would also better support the operation of the schemes as a safety net for homeowners.

Policy endorsed by the National Board: November 2019; NPC Re-endorsed with amendments 2024