'joke' Insurance No Comfort For Claimants

The Age

Saturday August 2, 2008

Natalie Craig

Home warranty policies seldom protect consumers, writes Natalie Craig.

WHEN Giorgio De Nola's parents died within months of each other, he used his inheritance to build a house for his wife, Marina, and their young children.

He signed a contract with a licensed builder in 2004, which included a home warranty insurance policy. Four years later, the house is so poorly built that the De Nolas do not have a certificate of occupancy.

Building inspectors have told them the balcony is not safe. The shower leaks into the kitchen, the garage roof has had to be replaced and their repair quote is more than $50,000. But when the De Nolas tried to claim on their legitimate insurance policy, they were told they were on their own.

"Our insurance is not worth the paper it's written on," Mr De Nola said. "Home warranty insurance is a joke. People need to understand that they are not insured."

Since the collapse of HIH in 2001, building insurance has been "last resort". You must prove your builder is dead, has disappeared, or has gone out of business before you can make a claim. The compulsory insurance adds about 1% to the price of building.

Choice magazine has described the insurance as "junk" and the Consumer Action Law Centre says it offers "little or no protection for consumers, yet comes at significant cost". A federal Senate inquiry is under way and the system was removed in April in Tasmania after no payouts were made in four years.

Yet action groups remain sceptical about reform. There have been more than 30 inquiries in 10 years into the flaws of the system, which operates in all states except Queensland and Tasmania.

Phil Dwyer is president of the Builders Collective, set up in 2000 to protest about the insurance. "Buying a home is the biggest purchase of our lives, but that purchase process is treated with total disrespect," he said.

Mr Dwyer is aware of one successful claim in Victoria in six years. HIA, the dominant broker of the insurance, cannot provide figures on payouts. The leading insurer, Vero, with about 50% of the market, said it paid out about 60%-85% of the money it collected in premiums to claimants. But the Senate inquiry was told that in NSW, only 7% of premiums were paid out in claims.

Insurance data is usually required by prudential regulator APRA, but changes to corporations regulations in 2002 removed normal consumer protection requirements.

The De Nolas discovered this the hard way. In 2007, they took their case to Building Advice and Conciliation Victoria, which is responsible for resolving such disputes. But the BACV said it could not pursue the builder as his licence had lapsed.

The De Nolas can either try to sue the builder or wait to see if he becomes insolvent. A successful claim would only cover 20% of the original contract price, or about $64,000 - less than their estimated legal fees.

Danny Tauber is also fighting his builder over defective work on the house he is building in Caulfield.

"It's going to cost us significantly more than our builder's original quote to fix and complete the defects," he said. "If we want to be able to make a claim, we have to do nothing for however long it takes us to sue our builder, and if he doesn't pay up, we have to apply for his insolvency. This could take years."

He said one senior insurance claims adviser "openly bragged that he had only paid out on a handful of claims" since the introduction of the scheme.

HIA, as the prime broker of the insurance, has been accused of reaping up to $80 million in fees. But chief executive Chris Lamont said the figure was closer to $3 million a year. "To suggest that this is money for jam is totally wrong . . . Brokerage is a competitive game. If the underwriters and the big insurers felt that they could do it better then they probably would."

The HIA will front the Senate this month, and wants the removal of a builder's licence to be an earlier trigger for an insurance claim. It also supports APRA regulation, but does not believed the system should be scrapped.

The State Government is in favour of the insurance but wants a stronger dispute resolution process; the Opposition wants it eradicated.

Even if the system is rectified, it will be too late for the De Nolas. "It was supposed to be a new start for us," Mrs De Nola said. "This builder has put us through hell and stolen the last four years of our life when our children were babies. We can't have that time back."

Avoiding a dispute

1. Ensure your builder is a registered building practitioner.

2. Obtain at least three written quotes for the building work to be carried out.

3. Check your builder's work by visiting homes built by them.

4. Ask for references.

5. Check to see if your builder has been involved in any disputes.

6. See your builder's domestic building insurance policy.

7. Understand the building contract. It includes a start date, finish date and details about progress payments.

8. Work with your builder to ensure the building contract is accurate and that building work is completed in relation to the progress payments schedule.

9. Document all work conducted from day one.

10. Communicate with your builder throughout the building process.

© 2008 The Age

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