NIBA CEO Dallas Booth has criticised proposed reforms to the NSW home warranty insurance scheme that could see the abolition of commissions paid to insurance brokers – or even the removal of brokers from the whole process.
The NSW Government is undertaking a major review of home warranty insurance in the State. The Home Building Compensation Fund (HBCF) is owned and underwritten by the State, but was $293.8m in deficit as at 30 June 2015 – a jump of 43% from a deficiency of $204.8m as at 30 June 2014.
The Government published a discussion paper in late 2015, proposing a range of possible reforms. The discussion paper noted: “In its current form, the HBCF is not financially sustainable.”
NIBA is concerned that the role and value of brokers in this process is not well understood by the NSW Government.
Among the proposals put forward was the abolition of commissions paid to insurance brokers, and indeed the possible removal of insurance brokers from the whole process – options that NIBA Chief Booth believes do not address the core failings of the scheme.
“I’m concerned that the role and value of brokers in this process is not well understood by the NSW Government,” he said.
“Builders are experts at what they do, but the home warranty insurance scheme in NSW is really quite complicated. Brokers play a vital role in helping their builder clients access and operate within the HBCF scheme, and provide considerable value to the underwriting process. Nobody else can play that role except brokers.
“The NSW scheme is in dire straits.The way it is designed and priced means it doesn’t cover the risk. The suggestion, therefore, that brokers might be removed from the equation is quite remarkable.
“Not only would removing brokers from the process cause major disruption for scheme underwriting, it will also fail to address the fundamental financial challenges that the scheme faces: the number and cost of claims against the scheme. Nobody seems to be asking what’s driving these claims costs.”
Even if broker commissions were abolished, the scheme would still be financially unviable.
NIBA has provided a submission to the review, and worked closely with a number of brokers who specialise in this area to ensure their concerns were reflected as accurately as possible.
The submission, which can be read here in full, notes that even if broker commissions were abolished, the scheme would still be financially unviable, and the insurance process – and possibly even the residential building industry in NSW – would grind to a halt.