What’s wrong with HOW insurance.

The Last Resort Home Builders Warranty Insurance Senate Inquiry report fails to recommend the far-reaching makeover of a system that is expensive, mandatory and close to useless.

So what does HOW cover? Not a lot.

In my book The Renovator’s Survival Guide I talk about the farcical nature of our mandatory Home Warranty insurance system, applicable in all states that is except Queensland and the Northern Territory. I’m not alone in thinking it’s lacking.

As Choice writes on their website: “Many important protection measures have fallen by the wayside lately that the term ‘insurance’ seems a misnomer in the way you’d normally understand the word.” (Perhaps that’s the excuse the Senate inquiry needed to recommend that a mere name change was a key part of the solution to the problem. Unfortunately that ignores the rest of of the problem.)

“In brief,” Choice states, “in most states, you can’t insure your home against builder failure the same way you insure against, say, theft. While you have to have home warranty insurance, it doesn’t cover all cases of incomplete or shoddy work - it’ll only kick in if your builder dies, disappears or becomes insolvent.”

The Choice verdict

“Consumers need protection if something goes wrong with their home building contract. This means good quality insurance and access to an alternative dispute resolution scheme. The current privatised home warranty scheme, as it operates in most Australian states, appears to primarily benefit insurers and larger building companies at the expense of consumers and smaller builders.

“A Queensland-style system offers much higher levels of protection for consumers as well as being easy to access for builders. Tasmania now goes as far as it can to matching the Queensland scheme.

“CHOICE calls on the other states and territories to act to ensure that home building insurance and warranty schemes offer value for money, as recommended by a recent Productivity Commission inquiry.”

The three killer words

The phrase dies, disappears or becomes insolvent is very important. Disappears doesn’t mean that you can never get your builder on the phone or that he never calls you back. Death is well death, and so if your builder doesn’t actually disappear or die, then the only realistic trigger for activating your HOW insurance is that the builder becomes insolvent.

Have you an idea what’s involved in winding up a company in order to have your builder declared insolvent? It’s so complicated that I’m not even going to attempt to paraphrase this here - check it out for yourself at the Federal Court website.

The point is, that the onus is on the consumer to take legal action either through the relevant tribunal or court. It will almost certainly be time-consuming, probably frustrating, and potentially expensive. In the most extreme cases, after the months or years that you spend doing this (not to mention the thousands of dollars), you’ll be able to claim on your HOW. That’s also if you didn’t resolve it before you reached this point.

In conclusion

1. I don’t believe that consumers should be forced to buy something that is unlikely to ever benefit them. (I might as well have just written a cheque straight to the insurance company as a donation. I’d rather give a few thousand bucks to Medecins San Frontieres though.)

2. I do believe that there should be first resort insurance alternatives available. I also believe that such insurance should be optional.

3. I also believe that there need to be far better links between monitoring builder performance and licensing. (My builder is still listed as having ‘no claims’ against him. This is despite the fact that I sued him, won a judgement, settled, and had a costs order. Of course, the onus is again on the consumer, to make sure this information is somehow listed with the Department of Fair Trading. I tried that once, but couldn’t get past the duplication in paperwork. It seemed that my 156 page affidavit wasn’t sufficient - frankly after having spent four years in legal action I was just too damned tired to do any more.)

4. I also believe that many of us go into our renovations doing less homework and research than we did to buy the house itself - or even the latest computer or car. I saw first hand that things I failed to find out about or prepare contributed to my renovation becoming a disaster, that in the end led to terminating the builder’s contract, and taking legal action. I am now firmly convinced that as consumers and clients, preparation is the key. It doesn’t make HOW insurance any better but it sure as hell helps you avoid needing it.

Tagged as: Home Owners Warranty insurance