Housing Insurance Contracts Secure
The Age
Thursday April 11, 2002
The residential building industry was not in an HIH-style crisis despite a major residential building insurer on Monday suspending insurance coverage for new dwellings, industry groups and the State Government said yesterday.
The freezing of new insurance contracts by Dexta Corporation, which insured up to 40 per cent of Australia's residential builders, also had no impact on the company's existing contracts, which would be honoured by the underwriter, Allianz Australia.
Under the mandatory warranty scheme, residential builders must obtain insurance covering insolvency of their company and their workmanship before they can start a building project.
In Victoria, about 1000 builders were affected by the new policy freeze, covering about $2.5 billion of the industry's $11 billion of work.
The building industry's two remaining insurers, the Housing Industry Association, which claims about 50 per cent of the market, and Reward Insurance Ltd, which claims up to 15 per cent, yesterday said they were willing and able to pick up new insurance policies for builders that had previously been insured with Dexta.
There could, however, be delays of up to two weeks on new projects while builders' applications were processed.
``For the last 72 hours we have been getting calls from Dexta clients saying they have been unable to get insurance and asking if they can come across," HIA's Victorian director, John Gaffney, said.
``We have special facilities for new customers we will have to reinitiate . . . where a lot less will occur in terms of prudential checks so that we can fast-track the applications.
``If (a builder) hasn't got insurance this minute . . . if we get the rapid access system going again, we're looking at a week turnaround, if we haven't then we are looking at a three-to-four-week turnaround."
Reward Insurance managing director Murray Nugent also played down talk of a crisis, but added that his company had already notified the industry that it was willing to pick up the slack created by the loss of Dexta.
``We (Reward and HIA) would have the capacity to absorb them and take them on, so in terms of a crisis that houses won't get built and owners will do whatever and builders will go broke, I think that is somewhat exaggerated, although I accept there will be some time delay," he said.
The Master Builders Association, whose builders were insured through Dexta, yesterday called on the Victorian and New South Wales Governments to sort out the ``systemic problems" with the home warranty scheme.
``All these things are just symptomatic of an underlying problem with the Home Warranty Scheme," said the association's national executive deputy director, Wilhelm Harnisch, who added it was important the Federal Government's review into the industry be finalised as soon as possible.
Meanwhile, the Victorian and NSW Governments were yesterday in urgent talks with building industry groups and insurers, including Royal & SunAlliance, in an attempt to formulate a plan to rescue Dexta, or possibly entice another insurer to enter the industry and work with them.
Victorian Finance Minister John Lenders described the talks as ``vigorous" and said he believed a 10-point plan by the governments of Victoria and NSW to modify the home warranty scheme, outlined last month, would help attract international interest to the market.
Victoria's Building Commission director of policy services, Jeff Naughton, said all options were ``on the table".
Mr Naughton said the major problem facing the industry was that insurers and international reinsurers were put off by the ``long tail" nature of the mandatory warranty scheme, which required builders to be responsible for their work for six-and-a-half years after completion.
Dexta managing director Ashraf Kamha blamed the global reinsurance market for its decision.
``The global reinsurance market is in turmoil and with premiums increasing in all classes of insurance, reinsurers are focusing on short-tail and low-risk products," he said.
© 2002 The Age