The Australian Greens moved for a Senate Inquiry into Last
Resort Home Warranty Insurance because it was clear to us that the privatised
last resort home warranty scheme as it currently exists does not provide
appropriate consumer protection or building industry management. It was clear
to us that it is not working for consumers or the building industry and should
be either abolished or reformed.
Even the Productivity Commission in its 2008 report, Review
of Australia’s Consumer Policy Framework, commented on the large number of
complaints it received about this insurance product. Its report noted the need
for better consumer protection in home building and the need for early stage
consumer protection measures like improved dispute resolution and better
linking of licensing with builder performance.
The decision of the Senate to inquire into mandatory last
resort home warranty insurance was welcomed by consumer advocates and builders
alike as a means of finally exposing and ending the mandatory and grossly
flawed nature of what Choice magazine described as “junk” insurance. Criticism
of the scheme is not new with the Tasmanian government being the most recent to
dump the scheme following extensive evidence and supporting documentation from
Kim Booth Tasmanian Greens MHA.
The overwhelming majority of submissions and evidence
confirmed that the product is fundamentally flawed and provides little or no
benefit to either consumers or builders. The limited support for the product
came from the NSW and Victorian state governments, or those who have benefited
from it financially including the Housing Industry Association, (HIA) and the
insurance industry itself.
Throughout the hearings, no one said that they would
purchase last resort home warranty insurance unless they were forced by law to
do so. Even the Housing Industry Association admitted that it would support the
product becoming voluntary.
Therefore the recommendation of the Committee to maintain
the scheme (albeit with some improvements) and its mandatory nature is wrong
and unfounded. It does not reflect the evidence.
The weak conclusion that the scheme should be mandatory
because it might provide some redress is unsupported by any evidence. The
insurance was not used in dealing with the Beechwood collapse in NSW and the
Gumleaf Construction collapse in Victoria. If it is effective in providing
redress, why was it by-passed? The second argument that if the scheme was
voluntary it would not be worth the insurance industry providing the product
because of the low demand, proves the point. It is a worthless product.
There was considerable evidence supporting the claims of
builders that the current situation requiring unlimited bank guarantees has
driven many into non compliance. It is unacceptable that active bank guarantees
and deeds of indemnity lock builders in and preclude them from being able to
change insurers. It is wrong that many builders are still trying to get their
guarantees back long after the appropriate period has passed. Action must be
taken by the relevant authorities to rectify this injustice.
Throughout the hearings many remarks were made about the
role of the HIA and the power over its members that it has been able to
leverage because of the mandatory nature of this insurance product and the lack
of competition in the market for this insurance product particularly in the
early years following privatisation. It is clear that builder registration and
licensing should be better linked to skills and performance rather than be
dependent on insurance industry requirements. The current arrangements have
afforded undue power and influence to the insurance industry and its brokers.
Whilst HIA describes itself as an association, it is a
company limited by guarantee. It has no shareholders and does not pay dividends
to its members. It has over 40,000 members and as the report indicates, it
received revenue of $88.5 million in 2007. HIA owns 50% of HIA Insurance
Services which in turn has a 40% market share of the home warranty insurance
The report refers to the issue of alleged suppression of
internal dissent in the HIA and the questionable representative nature of its
structures. Whilst the Committee report describes the issues, it chose to take
no view on whether the HIA’s structure is representative or effective in acting
on the views of its membership. It is clear that HIA does not have an
effective representative structure as many members seem to be disenfranchised
in the organisation.
Whilst the HIA surveys its members, there seems to be no
mechanism for the members to hold the organisation to account. Evidence was
provided that in a specific instance in July 2004, a member was informed that
“you are not among the class of persons who would be entitled to receive notice
of, attend or vote at such a meeting” referring to the request to hold a
general meeting under Section 249 D of the Corporations Act. The responses of
HIA to the allegations were misleading and it would appear that the matter of
whether or not the HIA breached Corporations Law is outstanding.
Many submissions to the inquiry highlighted the benefits of
the Queensland model of home warranty insurance. This system is described in an
Appendix to the Committee report. The Greens concur that this scheme represents
best practice in Australia and has the support of consumer advocates and
The Greens make the following recommendations:
Australia should adopt a national approach to this issue and
rapidly move to a system based on the Queensland model of home warranty
insurance. The Federal government should oversee the design of the scheme and
seek to have it implemented through the COAG process. A timeframe should be
adopted such that the new model comes into operation by January 2010.
Between November 13th 2008 and January 2010, Last Resort
Home Warranty Insurance should not be mandatory. If an insurance product
provides good cover it will be supported voluntarily.
The Greens agree that any form of Home Warranty Insurance
should be included in the National Claims and Policies Database.
If any loopholes remain in Commonwealth regulation or
legislation such that HWI is exempted in any way from oversight by APRA, ACCC
and ASIC, then that legislation or regulation must be amended immediately to
close the loophole.
Senator Christine Milne
Australian Greens Senator for Tasmania
Deputy Leader of the Australian Greens
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