The National Insurance Brokers Association (NIBA) has provided a submission in response to the Independent Pricing and Regulatory Tribunal (IPART) draft report on the Review of the Effectiveness and Efficiency of the NSW Home Building Compensation Fund (HBCF).
NIBA’s submission was critical of the report, stating that the eighteen draft recommendations “do little to address the systemic issues that have long plagued the HBCF.” In particular, the Association argued that the recommendations do not address the underlying risk profile of the fund or the uncertainty surrounding the long-term economic viability of icare HBCF.
The submission highlighted the continuing decline in the financial performance of the scheme, pointing to the $636 million deficit the scheme report in the 2019/19 financial year and the $12.2 million of funding provided to icare in July 2019.
NIBA also brought attention to opportunities for icare to leverage data analytics tools and enhanced information collection during the builder eligibility process to better identify high-risk builders and exclude them from the scheme. NIBA argued that as icare is a monopoly provider of an industry mandated insurance product, unethical builders will be forced from the industry and over time this will improve the risk profile of the scheme.
The submission also shined the spotlight on the fact that the worsening risk profile was a key reason for the departure of private insurers in this space stating that it, “does not envisage private insurers re-entering the market until these issues are addressed.”
It also highlighted the immense value broker distributors provide to both builders and icare. The submission outlined the breadth of services distributors provide their clients arguing that HBCF insurance is not a ‘set-and-forget’ product and that distributors engage with their clients on an almost daily basis to ensure that they are meeting their requirements under the terms of the COE.
The member body corrected the assertion made within the report that broker commissions increase the cost of insurance by approximately, arguing that icare does not pay commissions and instead, brokers are remunerated through a fee-for-service model negotiated between the broker and the client.
NIBA also argued that due to the monopoly nature of HBCF, brokers are already forced to compete on price terms, and this competition has resulted in a considerable reduction of fees across most broker distributors, below the 15 per cent stated in the draft report. The submission also addressed the uncertainty this inquiry is creating as to the role of brokers within the HBCF market and the potential impacts on the tender process currently being undertaken by icare.
The Association called for a suspension of the tender process until a final report has been released and brokers have greater certainty as to the future of the environment in which they operate. The submission also stressed that a number of the tender requirements create a barrier to entry for new and existing participants in the market, stating that “ The ability to provide HBC insurance should be determined by the experience and capabilities of brokers, not arbitrary limits set by icare.”