Queensland builders see red as warranty insurance premiums rise by 7%

Queensland builders see red as warranty insurance premiums rise by 7%

Posted on Thursday, July 12 2012 at 10:02 AM

Queenslanders already pay up to four times more in home warranty insurance premiums than in most other states and territories, and on contracts signed from July 23 this year the state’s construction industry and new homeowners and renovators will be hit even harder as the insurance premiums soar by a further seven per cent.

This month has been a confusing
one for builders across Australia. Despite many of their suppliers announcing
significant rate rises from July 1, because of the Australian Competition and
Consumer Commission’s (ACCC) heavy-handed censorship crackdown, these
businesses can’t legally tell their customers it’s due to the carbon tax,
unless of course they can satisfy the ACCC with sufficient evidence – a tough

As building supply rates rise,
regardless of if it’s due to the carbon tax or generally reduced demand for
goods, the building sector is expected to absorb the brunt of the price
increases, because it still needs to meet the market – a market that knows it
currently has an enormous supply of builders hungry for the work and can pay
substantially less than at the market peak in 2008. 

Brisbane-based builder and
renovation expert David Clarke of Renovation Right just learned of the increase
this week. He says any rise in building costs to the market will make it even
harder to secure work and it will undoubtedly create a ripple effect throughout
the sector.

“We’re the dummies in the middle
– the guinea pigs – having to deliver the news of these insurance costs to the
clients. We tell our clients what the quote is, then we have to tell them to
add on an extra percentage for the insurance. So we’re the ones who lose out,”
Clarke says.

“I think we’re just being swept
along in another government money grab. What the government should be doing is
encouraging people to spend on construction, not discourage it.”

On construction work valued over
$3300, the Queensland Home Warranty Scheme at question provides customers with
protection if the builder becomes bankrupt or winds up in liquidation, if the
builder fails to complete the contracted works, or if the builder provides
defective work. Ultimately it’s the consumer – new homeowner or renovator – who
pays the premium, but it’s an added cost the builder needs to present to the

Queensland’s Building Services
Authority (BSA) is responsible for the seven per cent increase. It states that
the increase in the Home Warranty insurance premiums on building contracts
signed from July 23 is necessary to ensure the scheme remains financially

BSA general manager Ian Jennings
says the increase is due to a number of factors. Firstly, “the number and
complexity of claims” over the past year; secondly, the number of contractors
becoming insolvent due to the global financial crisis, hence more claims being
made by consumers; thirdly, the number of subsidence claims “due to changing
climatic conditions – years of drought followed by flooding rains”; fourthly,
the number of large-scale townhouse and unit development claims; and finally,
the legal costs due to escalating numbers of contractors and consumers
challenging insurance claims decisions.

The Housing Industry Association
chief executive Graham Wolfe prefers to look at the bigger picture and consider
what the premiums currently are and how they compare to other states even
before the increase.

“Over the past six months we’ve
seen some premium increases in WA, SA and the ACT, but the premium in those
states are about one quarter of Queensland’s premium… and now the BSA is
putting it up by another seven per cent!”

Wolfe says NSW’s premium is
about half of Queensland’s premium. “While there are some price adjustments
happening in NSW, because the government is trying to get the builders
currently on the lower premiums up to a single premium base so all builders are
at parity, rather than increasing the premium in one hit like in Queensland, in
NSW it’s happening over five years and was announced in 2010.

“So at the end of the day, yes,
there have been some increases across other states, however what it clearly
shows is that Queensland is by far the most expensive and that it’s clearly an
inefficient scheme.”

Wolfe puts it down to the
“recurrent expenditure” in Queensland’s scheme due to the policies being
administered through a single government-funded arm rather than through one or
more private enterprises, where competition can keep prices down and business
can be diversified. “It’s not only the cost of the policy but the administering
of the system.”

In other states and territories
home warranty insurance schemes are privately managed, with perhaps some
insurance policy underwriting by governments, Wolfe says.

“Ultimately the consumer pays
the cost in the end and increases like these are never good timing but there
are many more problems in the sector than just the warranty premium debate,” he

“I would suggest in this case
it’s probably good timing for an efficiency review into operating this scheme
through a government-funded arm in Queensland.”

Wolfe intends to take the issue
to Queensland Premier Campbell Newman.

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