Senate Attacks Housing's 'junk Insurance' Scheme

The Age

Monday June 9, 2008

Royce Millar, Investigative Unit

AUSTRALIA'S most powerful housing industry body may be forced to appear before a Senate inquiry into a controversial warranty insurance scheme.

The 43,000 member Housing Industry Association refused to appear before the all-party committee this week, with managing director Ron Silberberg dismissing the inquiry as a "kangaroo court".

But it appears MPs from across the spectrum are increasingly anxious about the mandatory scheme, in operation until recently in all states except Queensland, but under fire from critics including the Productivity Commission, consumer champion Choice and law reform groups.

Government sources confirmed the committee had sought advice on whether it could compel individuals or organisations to appear before it.

The inquiry was launched earlier this year amid concern that builders and consumers were paying millions a year for mandatory insurance that provides no real protection for either.

In April the Tasmanian Government abolished the scheme, with not a single payout made in four years. Victoria is believed to be looking to follow suit.

Victorian Labor senator and committee member Gavin Marshall said evidence had raised doubts about the value of the insurance, which is believed to cost upwards of $100 million a year in Victoria alone. He described it as "junk insurance".

The Senate committee is keen to know where the millions have gone. It has turned the spotlight on the insurance industry and the HIA which is one of the few beneficiaries of the scheme, introduced in 2002 after the collapse of the dominant HIH.

Builders were left without coverage, which almost brought the Victorian industry to its knees. In stepped the one remaining big player, Royal & Sun Alliance - now known as Vero - offering a 10-point plan to overhaul the industry, with the HIA as its broker.

Claiming little choice, the states accepted the deal, including downgrading the insurance to that of "last resort". Claims are only payable if a builder disappears, dies or becomes insolvent.

Last month the Productivity Commission released damning findings, describing the insurance as a "running sore" that "offers little protection to consumers in most circumstances".

Responding to a request to appear before the committee, the HIA replied that it had provided all the evidence it needed to in writing.

Not so, said Greens senator Christine Milne, who told The Age the committee wanted more detail, including the ratio of premiums to payouts. "They (the HIA) have realised it's rapidly becoming end game for this last-resort insurance; people want answers to the very hard questions that the HIA clearly doesn't want to answer."

Ron Silberberg angrily denied his organisation was making big returns from the insurance.

He said - apparently for the first time publicly - that the HIA received only about $3 million a year in licence fees from warranty insurance - a small portion of the HIA's $100 million turnover.

But critics say that is an underestimate. "If you look at their balance sheets and the amount paid in premiums, it has to be more," said builder Phil Dwyer, the national president of the rival Builders Collective of Australia.

Mr Silberberg defended the HIA, stressing that, as a limited public company, its directors were subject to more onerous compliance requirements than other industry associations.

KEY POINTS

? HIA calls inquiry a kangaroo court.

? In Tasmania, not one payout was made in four years.

? Critics include Choice and law reform groups.

© 2008 The Age

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