The NSW Government recently announced important reforms to the Home Building Compensation Fund (HBCF).

Under the Home Building Act 1989, builders must obtain insurance under the HBCF (previously called Home Warranty Insurance) for any residential work in NSW valued at over $20,000*. This insurance provides a “last resort” for home owners, covering loss where their builder cannot complete works or rectify defective works due to the builder’s insolvency, death, disappearance or licence suspension for failure to comply with a tribunal or court money order.

In December 2015, the NSW Government released a discussion paper for reform of the HBCF, stating the HBCF in its current form, which is subsidised by the NSW Government, was not financially sustainable. The purpose of the discussion paper was to canvass options for reforming the HBCF to ensure premiums will cover claim costs and provide protection for home owners in the future.

The following reforms will be implemented in stages from early 2017 to 2018:

  1. A move to risk-based premium pricing, under which builders will be offered premium prices that reflect the level of risk of their individual business, to reduce the lower-risk builders subsidising higher-risk builders;
  2. Allowing Home Building Compensation insurers to offer split cover for defects and non-completion, in addition to combined cover. The split cover recognises the different coverage periods and requirements for insurance claims for defects and non-completion;
  3. Increasing premiums over time in order to achieve financial sustainability in the future;
  4. Removing commissions paid to brokers; and
  5. Allowing private providers of Home Building Compensation insurance to re-enter the market and offer insurance that meets or exceeds the minimum consumer protections required under the HBCF scheme.

The reforms do not propose changing the threshold requirement for obtaining insurance, nor the insurance coverage periods.

If you would like further information about these reforms or advice about how these reforms may impact you or your business, please contact us (02) 6583 0449.

* Unless the works are exempt, such as multi-storey residential buildings of more than three storeys and with two or more separate dwellings.

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