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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