01.Home warranty insurance claims
Home warranty insurance
is supposed to protect
Unfortunately, it doesn’t do much to
protect against unscrupulous ones.
In every state except
Tasmania, home builders and home renovators are
required to take out
the insurance for
contracts of $12,000 or
more (or $20,000 in
NSW and WA). The
premiums are then
added to the homeowner’s
costs. To cover a newly built
home in NSW you’ll end
up paying about $1900.
But it’s generally not
money well spent.
The idea with home building insurance is that
you can have
mistakes fixed or get your money
back if you lodge a legitimate claim.
The tricky part is that every state (except
Queensland) operates a “last-resort”
model – you can only claim if the builder
goes broke, dies or disappears.
If the builder simply
refuses to repair the
shoddy work or return
your money, your
only option is to
take them to the
tribunal in your
state, which can be
a lengthy and costly process.
And if your builder
does go broke, dies or
disappears before the
complaint is resolved
and you’re forced to
resort to your home
it won’t cover legal
costs against the
builder, which can easily exceed the
amount you’re attempting to recover. (In
one case cited by the Consumer Action Law Centre, a claim for $63,000 incurred
about $90,000 in legal fees.)
CHOICE called for an overhaul
of home warranty insurance schemes (also known as builders warranty insurance, domestic warranty insurance, housing insurance and home indemnity insurance) in a submission to a Senate Economics
Committee review in 2008, one of the
many government inquiries into this
issue over the years. But last-resort home warranty insurance remains a raw deal for consumers, especially where Victorian home builders are involved.
Home warranty insurance cost and claims
The Victorian Managed Insurance Authority has reported that Victorian
homeowners paid about $87.8m in home warranty insurance premiums from
May 2010 to May 2011, but only
$108,000 was paid out on a total
of three successful claims. Over the same timeframe,
about 250,000 Victorians suffered
damage at the hands of Victorian home builders.
With little prospect for change on the horizon, some Victorian homeowners have launched their
own campaign to change the home warranty insurance system. According to the Building Compliance Reform Association (BCRA), a
fledgling consumer group set up to improve
protections in Victoria, less than one per
cent of policyholders meet the criteria for
making a claim, and the rare successful
claim isn’t likely to cover your losses.
The BCRA says insurers in Victoria
typically offer a pittance of what’s asked
for, such as $17,500 for a $900,000 claim.
Victorians can take their insurer to the
Victorian Civil and Administrative
Tribunal (VCAT) to challenge the payout,
but the insurer will likely prolong the
process and you won’t be covered for
these legal costs.