Special Reviews
Home building compensation

Home building compensation in NSW

Status
In progress
Start Date
Dec 2019
End Date
Dec 2020
What

IPART has been asked to review the efficiency and effectiveness of the home building compensation fund in protecting consumers who are currently covered under the scheme.

The Home building compensation fund compensates homeowners if their builder is unable to complete building work or fix defects because of insolvency, death, disappearance or licence suspension for non-compliance with a money order made by a court or the tribunal in favour of the homeowner.  It is funded through a mandatory insurance paid by builders for each project.

It applies:

  • for new buildings, renovations, and swimming pools
  • for dwellings up to three storeys high
  • for defective or incomplete work that occurs within the warranty period (6 years for major defects, 2 years for minor defects) 
  • where the value of the building work exceeds $20,000.

 

Why

Reforms to the Home Building Compensation scheme commenced on 1 January 2018 to improve the financial sustainability of the scheme. The market for insurance was opened to competition and innovation, and premiums were to be transitioned to levels that reflected the risk of different projects, and recover the costs of the scheme. 

The reforms also enhanced the powers of the scheme regulator, SIRA, to monitor and regulate the home building compensation scheme by:

  • licensing private providers
  • assessing and approving or rejecting premiums
  • managing the performance of the scheme’s providers and regulating their financial and prudential positions
  • issuing and enforcing HBC insurance guidelines with rules for premium setting, fees, market practices and claims handling
  • using data collection and analytics to increase transparency and accountability, and competition and innovation
  • operating the Building Insurers’ Guarantee Fund to provide a safety net for policy holders if a provider is declared insolvent.

Now that these reforms have been in place for two years, IPART will assess whether any further changes are required to improve the efficiency and effectiveness of the scheme.

IPART’s review is only one small part of the NSW Government’s broader reform program in relation to the building and construction industry.  The Building Commissioner has been appointed to lead the implementation of the reforms and advise Government on any additional reforms that may be needed to ensure better protections for homeowners and to lift building standards across NSW.

 

 

How

To assess the efficiency and effectiveness of the home building compensation fund, we will consider:

  • the scheme’s incentives for building industry participants to undertake good risk management and encourages good business practices
  • whether the scheme needs to further mitigate builders’ insolvency risk, for example through enhanced information collection in relation to builder progress payments, critical stage inspections, and issuance of compliance certificates or other measures
  • any other impediments to private sector participation in providing insurance through the home building compensation scheme
  • whether there are unnecessary regulatory or administrative burdens and barriers to entry for building industry participants.

 

As required by our terms of reference, we will focus on whether improvements can be made to help protect consumers who are currently covered under the scheme.

We will conduct a public consultation process and our own research and analysis. 

 

What Next

We will be releasing an Issues paper for public comment, followed by a draft report in June. Our final report is due to the Minister in August.

 

Key Contact
Jessica Robinson
Email
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