NSW SELF INSURANCE CORPORATION AMENDMENT (HOME WARRANTY INSURANCE) BILL 2010
Agreement in Principle
Debate resumed from an earlier hour.
Mr MICHAEL RICHARDSON
(Castle Hill) [4.19 p.m.]: Earlier I referred to Alkira Homes, which has display homes in Kellyville. The company has problems obtaining a quantity of insurance that would suffice for the 75 homes it has on its books. It has a cap of about $10 million, which is probably enough to build about 20 homes. That has now been extended by $2 million, which will enable the company to build another four or five homes, but there are 50 to 55 homes that it will not be able to build until it gets insurance. As a consequence, tradesmen are unable to work, people previously in Alkira's office are unemployed and companies that make building materials do not have work. There is a knock-on effect in the home building industry that we ignore at our peril.
The premium for Alkira's insurance has risen from $1,300 to $3,000 per home, although the company has put up $22 million in assets. That is a very significant amount of collateral, yet Alkira's insurers said they wanted some liquidity as well. They wanted Alkira to put up $2 million in cash. Of course, that is money that could have been better utilised to help grow the business. The company put up the money so that it can go ahead and build those homes, but it is asking why that should be the case. It is very concerned about the possibility that the Government-run scheme will be very tardy in getting up and running. It wonders whether the Government will hit the ground running with the new scheme and whether the Government-underwritten insurance will be available as of 1 July.
My constituent Susan Bell echoes those concerns. Mrs Bell is building a house on some land that she owns on the Central Coast. Her builders thought they had insurance. I guess they were using a private certifier because one wonders how they managed to get a construction certificate for the home without providing a current certificate of insurance. However, the first the builders knew that they had problems was when the premium they had paid appeared back in their bank account through their broker. As members can imagine, that created some significant problems for them and for my constituent. The builders gave my constituent the option of cancelling the contract. Mrs Bell tells me that at that stage they were just about at lock-up and they were not significantly ahead with their payments. Everybody felt it was in their best interests to continue with the work. Indeed, the Department of Fair Trading advised that it was the best thing they could do.
Of course, the company they are dealing with on the Central Coast has other contracts that it wants to sign but cannot do so as a consequence of the lack of insurance. According to some notes I have, the company has three contracts that it is unable to sign and the owner-builders have pulled out. If that is multiplied throughout the New South Wales economy it comes to many millions of dollars, if not hundreds of millions of dollars, worth of work that has effectively ceased because the Government has delayed getting this legislation through the House in response to the crisis that occurred when a significant number of insurers dropped out of the home owners warranty insurance business.
Builders are saying to me that there will be chaos on 1 July. Nothing is happening now and everything will happen after 1 July. They ask why the Government is not accepting applications for insurance today. I agree with that. It seems to me that given the type of scheme that is being set up, where the Government is the underwriter and a number of insurers will be acting as agents and there will be brokers, it should be possible to process and approve those applications for insurance now. Even if the insurance were not available until 1 July, it would ensure that the pre-approval process went ahead and the insurance would be available as of the beginning of the new financial year. At the moment there is no guarantee that will happen.
That is why I said in my introductory remarks that this bill could be renamed the "NSW Home Warranty Insurance (Just in Time) Bill". The great fear that builders and home owners have is that it will not be just in time and a number of builders may go under or will certainly lay off staff as a consequence of the Government's tardiness. I would like to hear from the Government whether it would accept that proposal and whether there is a way of bringing forward approvals of home warranty insurance from 1 July.
Another concern relates to the quality control building specialists who will manage the contracts of higher risk builders. We on this side of the House are very sceptical that that scheme will get up and running. As the member for Albury pointed out in his contribution, builders who operate under that scheme will be at a competitive disadvantage compared with those who do not because of the length of time it will take to obtain insurance. I understand the panel of quality control building specialists is currently in disarray. The Master Builders Association will not tender for the process because there is insufficient detail about what will be required from the managers and how they will be remunerated.
It is interesting to note that Queensland Master Builders will give anyone $3 million home warranty insurance without their having to put up collateral. I understand a similar sort of scheme operates in Victoria. There are some significant flaws in what the Government is proposing. On this side of the House we certainly understand the importance of the building industry to New South Wales and that is why we do not intend to oppose the bill. But we would like the Government to address issues we have raised during the debate.
Mr NINOS KHOSHABA
(Smithfield) [4.27 p.m.]: I am pleased to speak in support of the NSW Self Insurance Corporation Amendment (Home Warranty Insurance) Bill 2010. Without this action, a key driver of the New South Wales economy would have been under threat. The New South Wales Government recognises the importance of our housing sector and is doing what it can to keep it strong. The good news is that the latest official data from the Australian Bureau of Statistics shows that New South Wales is leading the nation in home approvals. Official housing data shows a 43 per cent increase in residential building approvals in New South Wales from February to March.
The bill will protect 35,000 licensed builders and thousands of home owners in New South Wales who could have been placed at risk by tightening of the home warranty insurance market. During the period from 2004 to mid 2009, there were up to seven insurers providing home warranty cover in New South Wales. Builders were not experiencing difficulty in obtaining either eligibility for home warranty insurance generally or cover for specific projects. However, many builders are now finding it difficult to achieve eligibility or obtain the level of cover that they require. This is a direct result of the global economic crisis, which has seen a substantial contraction in the home warranty market with insurers more closely scrutinising and enforcing their underwriting criteria.
That problem was exacerbated by the withdrawal of CGU Insurance Limited and Lumley General from the home warranty market during the latter part of 2009. Vero Insurance Limited, which has the largest share of the home warranty market, will cease providing home warranty cover on 1 July 2010. That would have left only two insurers in the market and it would have created further difficulties for builders. Since August 2009 insurers have reported more than 300 builders as having been declined eligibility or cover for projects. Builders not being able to obtain home warranty insurance cover potentially jeopardises a $20 billion industry that employs 250,000 people in New South Wales. There is also a flow-on effect to thousands of homebuyers, apprentices, subcontractors and suppliers.
The Government's decision to establish SICorp as the sole provider of home warranty insurance was made in November last year. Since that announcement SICorp has been working closely with representatives from the building and insurance industries. This partnership approach has meant that the new arrangements planned to be in place from 1 July this year will provide the necessary certainty and security to allow builders to get on with the job of building residential properties. By taking this decisive action the Keneally Government is providing stability to the residential construction industry, protecting jobs, and giving peace of mind to home owners.
The reforms in this bill demonstrate the Government's firm and ongoing commitment to supporting the residential construction industry. Once again these reforms demonstrate that New South Wales is a place where tradespeople can get on with the business of building our economy to see us into the future. Without the safety net provided by home warranty insurance, many home owners would not have been able to have their homes completed or defective work rectified, or they would have suffered severe financial loss. This bill will protect business and consumers. I commend the bill to the House.
Mr JOHN TURNER
(Myall Lakes) [4.32 p.m.]: As the member for Castle Hill and shadow Minister for Fair Trading said in his earlier contribution, the Opposition does not oppose the NSW Self Insurance Corporation Amendment (Home Warranty Insurance) Bill 2010. However, it has a number of reservations about it, and rightly so. Over a succession of years this Government has presided over the rise and fall of a number of home building insurance schemes. This is yet another example of the Government trying to put Humpty Dumpty back together again, which is no different from last time—an issue with which I will deal later. At high noon—the old legislation is due to be phased out in June—the Government has introduced new legislation. The member for Smithfield said that originally this matter was discussed in November. We are now in May and we are pushing a June start-up date when the wheels are not even on the vehicle.
This Labor Government has a terrible history in the home building area. I remember when home building insurance moved from the government sector to the private sector when I had carriage of this matter. At that time I said there would be problems associated with the private sector because it would hold industry and the Government to ransom in administering the Act, which came to pass. That is what happened in 1996 when building insurance went from the government sector to the private sector. On 30 April 1996—one day before the implementation of the legislation—the Minister did not have available an insurance company to take up the role of insurer and we were teetering on the brink of disaster. The Minister eventually found two insurance companies: HIH and FAI.
At that time I wrote to the Minister and said, "If you pull back the Opposition is prepared to work with you until you have well-known insurers with a proven track record." On 1 May 1996 I issued a press release and said that I had severe concerns about HIH Insurance Limited coming on board as the new home building insurer. I received a phone call from Mr Ray Williams, who was aghast that I should question the integrity of his firm. I say to all those who suffered great losses under HIH: In that instance I was prophetic. I do not resile from the fact that I said forcefully to the Minister at the time that she had made a mistake and that she should have pulled back. We are now seeing a repeat of those events with the Government's legislation being re-jigged rather hastily. There is nothing in the legislation or in the Minister's agreement in principle speech to show who will be the service providers. There is no fee structure for service providers, no detail of the liability that might attach to service providers, and no details of premiums associated with this legislation.
The Labor Government, which cobbled together this legislation at the last moment, has lost sight of the fact that it is important to insure the biggest investment any man or woman will make in his or her life, apart from producing children—a home investment. It is not good enough that the Government left this to the last moment. It is not good enough that the Government has not spelled out every aspect of this legislation. We are aware of this Government's track record in the area of building insurance, so it is simply not good enough for it to say that the people of New South Wales should trust it. It is important that this legislation works for the benefit of the people of New South Wales. However, many issues have not been resolved. Further down the track this Government, once again, might have to prop up its ill-conceived legislation. I refer to contradictions in this legislation. The Legislation Review Committee, in paragraph 7 of the Legislation Review Digest, states:
A single government insurer aims to allow premiums to be priced consistently across the State.
We do not know that, as we have never seen any premiums. The Legislation Review Committee goes on to state:
There will be one set of eligibility conditions for all builders.
We do not know what those eligibility conditions will be, as we have not seen them. The Legislation Review Committee also states:
This contrasts with the current arrangements where different rules apply depending on the insurer.
In the Minister's agreement in principle speech we find the following:
SICorp will be required to comply with the market practice guidelines that set the service standards applicable to builders and consumers. This is consistent with current industry practice.
On the one hand, the Government is saying that it contrasts with current arrangements and, on the other hand, it is saying that it is consistent with current industry arrangements. Builders will have to put their lives on the line in relation to these issues. We know that this is not a real insurance scheme; it is one in which the builder will be paying not only the premium but also the rectification costs. At best, it is a scheme of last resort. I believe that there will be other problems. The Government has got it wrong again. I cannot understand this Government. It has control of the whole of the public sector in this State, but at the death knell of the phasing out of the old legislation it has introduced new legislation.
What happens if this bill is blocked in the upper House? Builders and home owners will be in all sorts of trouble. I hope that commonsense prevails and this bill passes through the upper House. More importantly, whoever has carriage of this bill in the upper House should spell out all the things that are not referred to in the bill or in the Minister's agreement in principle speech.
Mr ROB STOKES
(Pittwater) [4.38 p.m.]: I make a brief contribution to debate on the NSW Self Insurance Corporation Amendment (Home Warranty Insurance) Bill 2010. Like other members who have spoken in this debate, I agree that this legislation is necessary. Without it home building in this State would come to a complete halt. I take this opportunity to warn consumers not to believe that home warranty insurance will give them genuine and complete protection. I wish to relate a story from my community of Pittwater—one of those horror stories of things that can go wrong, despite the best efforts of consumers to check out the bona fides of the builder who is being used. Things can still go horribly wrong. Community members should not believe for one moment that relying on current home warranty insurance would be sufficient to cover any potential loss.
A young family in my electorate bought a home in Mona Vale, carried out all the requisite inspections, including pest inspections, and the home was properly certified. The home was relatively new—only a couple of years old—and it was the builder's own home. The couple had not only pest and building inspections undertaken, but also an infrared pest inspection. They received all the certification and the final occupation certificate that showed this house—a very handsome home at first glance—had absolutely nothing wrong with it.
However, it did not take long for the new owner to learn that it was in fact a house of horrors. When the owner removed the carpet to lay new carpet he noticed a little dampness and rot around some of the skirting boards. He removed the skirting boards and found they were totally rotten. He soon discovered that the wood throughout the home was completely infested with termites. He then went outside the building and noticed a trail leading to an old tree at the rear of the property—it was infested with termites. As he investigated further he realised that the natural ground level outside the home was higher than the floor level of the house, which raised his concerns about damp. He dug down beneath the house and found lots of asbestos. It was then he realised that the builder had dumped all the fibro from the cottage that had been demolished under the backyard. After digging deeper he discovered that the slab was extremely thin and had actually been built over the driveway of the former house.
From what I understand, the condition of this house is such that it has to be demolished. The owner has told me that after 11 months of completing the expert evidence process, the matter is now in the Supreme Court. He has a 200-page submission containing reports from eight different experts. Even though he has joined as parties to the litigation the various people who let him down in the process—the pest inspector, the certifier, and the original builder who has since disappeared—there is not enough insurance from all the parties to cover the losses he will sustain. This is a horror scenario. I have taken the time to explain it to the House to demonstrate that home warranty insurance is insurance of last resort, but that even after going through the painful, lengthy, expensive and tortuous process of court action to try to find who might take responsibility, at the end of the day the pot of money that might be available is hopelessly inadequate to deal with the losses that may be sustained.
In addition, the news for consumers who purchase apartments in high-rise residential buildings is that they are not covered. Developers are not required to take out home warranty insurance for multi-storey buildings. We must be careful to remind consumers that home warranty insurance does not provide full cover. This brings to the fore the reason this scheme needs to be reworked. It must make sense and protect consumers while at the same time not place an unreasonable impost on the construction industry. Some people have told me that they believe they would be better off saving the money they would ordinarily spend on insurance and not insuring their properties simply because of the tortuous, long, confusing, costly and emotionally draining process involved in trying to get to a limited pot of funds at the end of a very long rainbow. I urge the Government to not stop at this point. This bill is a stopgap and is nowhere near what is required to ensure that home warranty insurance is worth the paper it is written on.
Mr MIKE BAIRD
(Manly) [4.44 p.m.]: I support the shadow Minister and his work on the NSW Self Insurance Corporation Amendment (Home Warranty Insurance) Bill 2010. He has been an incredible source of knowledge and has provided great insight into the problems this industry faces. The Opposition understands that the object of the bill is to establish a new Self Insurance Corporation as the sole home warranty insurance provider in New South Wales. The home warranty insurance industry has been beset by problems. Private insurance companies have pulled out steadily and, as we understand, the scheme is now unviable. I will not reiterate concerns that have been expressed already by many members, but I will focus on the particular point of the viability of the proposal. Obviously, the present scheme is unviable and there will be significant financial implications.
By its very nature the financial side of this industry was struggling. The Government has been quiet on the actual details of the scheme. The Opposition acknowledges the importance of the residential construction industry and, therefore, does not oppose the bill. We note the assurance from the Government that the bill will not reduce consumer protection in New South Wales. Although it is not exactly clear how that will be articulated, we take that assurance and rely on it. Questions remain particularly about the financial side. Residential work in New South Wales valued at more than $12,000 requires insurance. We are fast approaching the time frame within which this scheme needs to be in place.
With private insurance companies pulling out from the scheme we acknowledge that the Government must act and this bill is its attempt to resolve the problem. Many genuine concerns have been expressed about the way the Government has responded. Obviously, the time frame is critical. The object of the bill is self-evident. If this bill is not passed and the industry does not have a home warranty scheme in place, the construction industry, more broadly, is in jeopardy and, also, the mums and dads at the end regarding the homes they hope to build.
My main focus is the financing of the scheme. The Government will spend $15.6 million to establish the scheme, but then it talks about any surplus in the fund being paid into the Consolidated Fund. I hope the scheme will not be viewed as another bottomless pit and then in a good financial year when premiums are unexpectedly low it is used as a dividend by any future government as a way to prop up budgets. That just does not make sense. This scheme needs to be set up properly for the long term and it must be sustainable. I ask the Parliamentary Secretary in reply to detail the expected financial implications of the scheme, particularly to the State budget. With the imminent State budget and the Government taking on these obligations, it is not unreasonable to expect that the Parliament be informed fully.
What are the expected total liabilities of this scheme? How will that flow through to the State if those liabilities are not met by the scheme? What is the level of expected payouts? What are the expected premiums? Will they increase or decrease with the scheme being introduced by the Government? They are all critical issues. The scheme is not just for the short term; we must understand the short-, medium- and long-term implications. It would be easy to put a scheme like this in place and then haphazardly decide that the administrator is happy to pay out in the short term without any long-term consideration for fund surpluses and then try to deliver end result. My main request is for the Parliamentary Secretary to inform the House in detail of the financial obligations of the scheme to the State. We cannot enter into obligations like this without every member of the House being fully informed. I conclude my remarks by referring to a local builder who wrote to me about home warranty insurance. His letter states:
We have had a very tough 2 years with the GFC, on one project 20 of 23 payments were paid late because our clients finance was held up by the banks... I think there would be a bit more flexibility with the insurers to take on new clients if the State Government had done more... I can't understand how they are planning on getting a bill passed in government and then a workable scheme ready by the 30th June.
We seem to be a long way behind. Clearly builders require the support of the Government to be able to continue. During his reply the Parliamentary Secretary should provide an assurance to the Parliament that there will be a workable scheme in place by 1 July to maintain confidence and avoid a crisis. I reiterate that the Coalition seeks information on the financial implications for the State budget of the scheme and the nature of details that will be provided in the State budget on short-, medium- and long-term financial obligations. The Government should provide the members of the House with a true understanding of the full implications of taking on a home warranty insurance scheme and its inherent liabilities that will be borne by future generations.
Mr GEOFF PROVEST
(Tweed) [4.50 p.m.]: The New South Wales Self Insurance Corporation Amendment (Home Warranty Insurance) Bill 2010 is very important legislation. As a number of members who preceded me in the debate have indicated, the scheme will commence on 1 July 2010. The bill establishes the scheme and deals with transitional and saving provisions as well as consequential amendments to the Home Building Act 1989. Home warranty insurance remains a policy of last resort, but it is crucial to the viability of the building industry. Certainly that is the case in the Tweed electorate where approximately 10,000 new home sites will be approved in the next few months.
The Tweed is the fastest-growing area outside Sydney, Newcastle and Wollongong. A significant percentage of home construction that is occurring in the Tweed concerns first home buyers. Insurance policies are all well and good, but they need to be transparent and easy to interpret. It is often the case that the only time people read their insurance policy is when a dispute emerges. There are other aspects of the legislation that affect the Tweed electorate, and I will elaborate on those later. The legislation provides that the Government will become the sole authorised provider for issuing new home warranty insurance policies in New South Wales. The Government will establish a fund that will be managed through SICorp, which will engage private insurance firms and scheme agents to issue policies, collect premiums and carry out claims management.
Brokers will be the main shopfront from which builders will be able to purchase insurance. Hopefully during his reply the Parliamentary Secretary will address the issue of providing interim insurance cover. A number of builders have approached me and explained that it is of significant concern to them. Traditional insurers have withdrawn from the market. Builders who wish to enter into home construction contracts are experiencing extraordinary difficulty in finding an insurance provider. The Government may have a proposal and may have made interim arrangements with existing insurers and, if so, that information should be provided to people in the building industry. If interim arrangements are in place, the Government should ensure that the information is conveyed to stakeholders. Already a number of builders have asked me about interim arrangements, but I have no information to give them.
On the face of it, the bill does not deal with cross-border issues relating to home warranty insurance. Cross-border implications of legislation are uppermost in the minds of people who live in the Tweed. Some years ago the Government moved to alleviate problems associated with workers compensation for workers involved in both Queensland and New South Wales projects. The Government decided that if workers completed 60 per cent of their work in areas on either side of the Queensland-New South Wales border, they would be covered by their initial workers compensation scheme. That was a good resolution of the issue because it meant that workers did not have to be involved in two workers compensation schemes. I ask the Parliamentary Secretary in his reply to inform the House whether consideration was given during formulation of the legislation to establishing a scheme of home warranty insurance that is similar to the way in which the cross-border workers compensation scheme operates. After all, many Queensland builders construct in northern New South Wales, and vice versa. I am sure the Parliamentary Secretary is on the case.
I compliment the shadow Minister for Fair Trading and member for Albury who has considered the implications of the bill in depth, which is his usual approach to matters concerning his shadow portfolio. I am a little concerned about the legislation being rushed through Parliament: after all, 1 July is not far away. Any interim arrangements entered into by the Government could have far-reaching consequences for the taxpayers of New South Wales. Building projects take months to complete, especially for builders who have a stop-start project pattern. Any arrangement entered into could result in a significant tax liability being imposed on New South Wales taxpayers who effectively are underwriting the scheme. Cross-border issues warrant close attention and a scheme similar to the cross-border compensation scheme should be considered carefully. If the Government has already done so and I missed it, I am sure the Parliamentary Secretary will inform me during his reply. I reiterate that I am 100 per cent for the Tweed.
Mr WAYNE MERTON
(Baulkham Hills) [4.56 p.m.]: It is with pleasure that I support the New South Wales Self Insurance Corporation Amendment (Home Warranty Insurance) Bill 2010. Over many years of the work of this Parliament, the home warranty insurance issue has taken up a considerable amount of time. The schemes implemented in New South Wales have varied, but no-one could dispute the concept of home owners warranty insurance being a necessity. The scheme was introduced many years ago, virtually straight after the licensing of builders became a requirement. The government of the day established the Builders Licensing Board and subsequent to its formation, legislation was introduced to provide home building insurance. As I said, the concept of home warranty insurance is sound, wise and prudent. Its purpose effectively is to protect consumers and residential property owners from builders whose work is defective, builders who experience financial difficulties, and builders who, for some reason or other, are unable to complete construction.
On 13 May 2010 we have a crisis on our hands because, after many changes to the scheme by the current Government, effectively the State has run out of insurers. The Government has reached the end of the line. Soon no insurers will be prepared to cover home warranty insurance and when that happens, the home building industry could well grind to a halt. What a disgrace! It is true to say that for many years the Government has lurched from crisis to crisis while successive private insurers who deal in home warranty insurance—CGU, Lumley, General and most recently Vero—have withdrawn from the scheme and have left the home warranty insurance market. Currently New South Wales law states that building work on properties valued at more than $12,000 that requires a licensed builder must be the subject of home warranty insurance. It is essential for members of the House to understand the gravity of the situation. The collapse of the home warranty insurance scheme will result in the home building industry grinding to a halt.
It will result in massive unemployment, and many people will face a severe financial crisis. The building industry is the barometer of a country's prosperity in terms of community activity. It is a barometer of what small business is achieving. A great multiplier effect flows from the home building industry, whether it is the sale of white goods, carpets, paints, garden supplies or many other things that are simply irretrievably linked to the home building industry. New South Wales has a wonderful system of subcontractors. We have an efficient building industry. Many husbands and wives have put their financial security on the line so that the husband, whether he is a carpenter, an electrician, a tiler or a bricklayer, can be a subcontractor. The family business is often conducted around the family table. It is where the meetings between husband and wife—the board, as it were—of the little family company are held. And the utility is out the back, whether it be a Hilux or a Mazda one tonne ute.
Mr WAYNE MERTON:
Mr Gerard Martin: Or a Ford Courier.
A Ford Courier is not a bad ute. In a typical Australian family in which the husband is a subcontractor, the wife does the bookkeeping, she visits the builder's office every Friday to collect the cheques for the work that her husband has done during the week and Friday is payday. All of that would stop if there were no home warranty insurance. What has happened with home warranty insurance is a disgrace. As I said, today is 13 May; from 1 July the current home warranty insurance scheme will be kaput. The Government has an almost impossible schedule to set up its own self-insurance corporation to provide home warranty insurance. This matter was raised last year, and the Government was supposed to have introduced legislation earlier than today to deal with it. It is another typical example of the Government's ineptitude, neglect and failure to take the necessary steps to ensure that the New South Wales community is able to continue with its daily activities.
The Government is trying to get the legislation through the Parliament quickly. The Opposition does not oppose the legislation per se because it realises that it is either this or nothing. We are here to protect the building industry. As speaker after speaker has made clear, we do not support the mess created by the Government's litany of changes to home warranty insurance. We do not support the concept that home warranty insurance is an insurance of last resort. We do not ensure that home warranty insurance covers only situations in which the builder either becomes bankrupt or cannot be found. The home warranty insurance scheme should do more than that. I believe the Minister is doing her best, but she is probably receiving little support from her colleagues to address the real problems with home warranty insurance in New South Wales. The Minister and the Parliamentary Secretary should take note of these words:
When things don't go right in the building process, consumers are thankful that we run the best home warranty insurance scheme in the country. Our scheme is truly unique. It is the only home owners warranty insurance product that offers first resort insurance. Home owners are able to claim for non-completed work or defective work without the builder having to be insolvent. In every other State consumers must fend for themselves in the private arena as claims are only accepted as a last resort where the contractor is either dead, has disappeared or is insolvent.
These words refer to the situation in Queensland, just across the border from my good friend the member for Tweed. I am not a supporter of the Anna Bligh Government by any means. It has made a mess of a number of things, but we must give it full marks for preserving a government-owned home warranty insurance scheme. I have visited its premises, together with other members of this Parliament. We spoke to an executive of the entity, and we were assured that it makes a profit from its home owners warranty insurance scheme. If Queensland can do it—provide not last resort insurance but insurance on which "home owners are able to claim for non-completed work or defective work without the builder having to be insolvent" and it does not have to fend for itself in the private arena, as it does in New South Wales—why can't we do it? Consumers in Queensland can make a direct claim on the insurance company without having to chase the builder through the commercial tribunal.
The New South Wales Government's home warranty insurance is not really insurance at all. Ultimately it is capped. The product that the Government intends to offer, about which it was vague, appears on the surface to be exactly the same product repackaged, but the Government will run it. The Government should look at what its colleagues in Queensland are doing, see how successful the scheme is, then bite the bullet and make the hard decisions so that the people of New South Wales have a product that works. The Government has left it until the last moment. It is running out of time. It is desperate. It wants to get the legislation through, and the Opposition will help the Government to do that. We will not oppose the legislation. We support it because we do not want "working families"—to use the expression of that great man in Canberra—to go broke because they cannot get insurance. The legislation the Government introduced, which we support, requires insurance.
The Government should look at the issue sensibly, do the hard yards, go to Queensland and speak to the appropriate people, as the parliamentary committee did, and they will tell the Government exactly how it works. In Queensland consumers fax their application for insurance in the morning and in the afternoon they receive a fax confirming the insurance cover. Yet the Government makes a profit. No-one is complaining. People are not taking to the streets, as they have in New South Wales, to protest about home warranty insurance. Many active groups in New South Wales have been complaining about home warranty insurance. The Government has run out of insurers and the system is not working. The Government must do something about it. How long does the Government expect the people of New South Wales to tolerate its ineptitude, neglect, delays and lack of concern? It is time something happened. Now is the time to do it.
If the Government puts up reasonable proposals for a decent system that works, the Opposition will support it all the way. It is not as if there is a deterrent. There is no hindrance. It will get a safe passage through the Parliament. We share the concern of working families involved in the building industry: something must be done. This matter is of grave importance to the community, to New South Wales and to the whole of Australia. We must have a worthwhile, workable building industry in New South Wales. I am not convinced that this proposal is any better than the Government's previous proposal. The Government is simply changing the name of the insurer, whereas the substantive benefits of the insurance remain completely inadequate, as they are at present. We support the bill but we do not support the Government's system of last-resort insurance. To many people's thinking, last-resort insurance is no insurance.
Mr BARRY COLLIER
(Miranda—Parliamentary Secretary) [5.10 p.m.], in reply: I thank the Minister for Fair Trading and members representing the electorates of Albury, Davidson, Riverstone, Port Stephens, Swansea, Castle Hill, Smithfield, Myall Lakes, Pittwater, Manly, Tweed and Baulkham Hills for their contributions. The NSW Self Insurance Corporation Amendment (Home Warranty Insurance) Bill 2010 introduces sensible measures to support the significant home building industry and to protect jobs in New South Wales. I note that the Opposition supports the bill. In fact, the member for Pittwater went so far as to say that this bill is really necessary. Despite the Chicken Little type claims of the Opposition, the Government has acted quickly and decisively to ensure that home warranty insurance continues to be available, that consumers continue to be protected and that home building and renovation activity in this State is not interrupted. This bill will facilitate a smooth transition from the current scheme to the new Government-backed home warranty insurance scheme.
In answer to questions from members representing the electorates of Albury, Castle Hill, Myall Lakes and Tweed regarding the start date of 1 July, this Government is on track to commence takeover of the home warranty scheme on 1 July. The procurement process is well underway to engage insurance agents to provide home warranty functions on behalf of the Self Insurance Corporation [SICorp]. The new contractual arrangements are on track to be finalised by the end of May. Recruitment action to employ the necessary staff is well advanced and SICorp will be ready on 1 July 2010 to commence the new arrangements.
I assure the Opposition that the Government has consulted extensively with the building industry to obtain its input and views on all major aspects of the proposed scheme. Representatives of both the Master Builders Association and the Housing Industry Association have been appointed to a consultative committee reporting and providing input to the Home Warranty Insurance Scheme Board on the new arrangements. The consultative committee has met on a regular basis, and will continue to do so during and after the transition to the new arrangements. I am advised that the Master Builders Association has informed the shadow Minister for Fair Trading of its support for the bill.
Builders will need to meet certain criteria and demonstrate that they have the financial capacity to complete the construction project before they can obtain home warranty cover. Consumers need some certainty that their builder has the financial capacity to complete their building project. That is how the arrangements work now. Inexperienced builders and builders under financial stress who wish to obtain eligibility will be offered the option to increase the equity in their business through paid-up capital, provide a security, or opt for a builder management provider. Bank guarantees will not be sought by the Government as a condition for providing home warranty eligibility to a builder, although a builder can provide a bank guarantee if they choose.
Security in the form of a deed of indemnity may be required by SICorp as a condition of eligibility to builders under financial stress or whose trading history includes actions that have resulted in consumer detriment, such as previous claims, disciplinary action by New South Wales Fair Trading and unsatisfied tribunal orders. Importantly, the Government will introduce changes to how deeds of indemnity are provided from 1 July to ensure a level of certainty for builders and third parties who provide these deeds. Under the new arrangements a deed of indemnity will include a limit of indemnity and will have an expiry date and a mechanism for a builder to request a review to determine whether the deed of indemnity is still required. None of those features are common practice under the current arrangements. There will be a small number of builders who will be unable to obtain cover. If the financial situation of these builders improves they will be able to request consideration of cover once again.
As part of this bill, for the first time builders who are having difficulty satisfying the eligibility criteria for home warranty insurance will have the option of engaging the services of a building management service provider. Builders will be able to choose a building management service provider that meets their specific needs from a panel of authorised providers. Similar informal arrangements exist in some parts of the building industry today. However, the new arrangements will greatly extend the availability of this service. SICorp is establishing a panel of providers through usual government procurement processes. Consultation with the construction and insurance industries over the past few months has identified a need for this service. This initiative allows builders to continue their business while at the same time providing suitable protection for consumers and the Home Warranty Insurance Fund.
In relation to the expertise of SICorp to manage these arrangements, SICorp already manages the Government's insurance arrangements for all classes of risk through an outsourced model. Home warranty insurance will also utilise outsourced management arrangements. SICorp already manages a risk exposure of approximately $4.7 billion. Home warranty insurance is a marginal increase on this.
In relation to calls from members representing the electorates of Davidson, Castle Hill, Tweed and Baulkham Hills to follow the Queensland model, the Government made a decision in November 2009 to take over the management of the New South Wales scheme from private insurers in order to provide certainty to the building industry and to protect consumers and jobs. In order to meet a tight 1 July 2010 commencement time frame and in order to minimise disruption to builders and home owners, the Government decided that no major changes to the design of the Home Warranty Insurance Scheme should be made at this time. A review of the Home Building Act is currently underway and provides an opportunity to review the operation and design of the scheme, with sufficient time for full public consultation.
In response to the member for Davidson regarding the triggers, I remind him that this Government put in a fourth trigger for consumers to claim on their home warranty policy—that is, when a builder fails to honour a monetary order of the Consumer, Trader and Tenancy Tribunal. The member for Davidson also raised the issue of commission. I advise that the Government will not be charging in line with current insurance industry practice for broker commission. Fifteen per cent is the current standard rate, and this will be the maximum rate allowed in the formal agreements between SICorp, insurance agents and brokers. Brokers will have to provide the same level of service.
The Government acknowledges the importance of the building industry to the New South Wales and Australian economies. I appreciate and understand the enormous multiplier effects of the building industry, as does the Government, which the member for Baulkham Hills mentioned. The good news is that the latest official data from the Australian Bureau of Statistics shows that New South Wales is in fact leading the nation in home approvals. Official housing data shows a 43 per cent increase in residential building approvals in New South Wales from February to March this year, so it is not true to say that we are on a slippery slope. We have a busy, active, forward-looking and, in fact, progressive building industry, which is obviously going great guns at the moment.
In relation to Treasury managing the new arrangements, SICorp is part of Treasury that already manages the New South Wales insurance arrangements for all classes of risk through an outsourced model. It already manages risk exposure of $4.7 billion, and the home warranty insurance is a marginal increase on this. SICorp does have the expertise to manage home warranty. Fair Trading will, however, continue to regulate the home warranty scheme. This is an appropriate separation of regulatory and commercial functions, consistent with the Dodd report, which was mentioned in debate. In relation to the cost of administering these outsourced arrangements, Treasury is currently undertaking a procurement process to engage insurance agents to deliver home warranty functions on behalf of SICorp. Negotiations are currently underway and remuneration for the outsourced arrangements is one of a number of areas up for negotiation.
The member for Davidson spoke about the need for a monopoly. I point out—and I am sure the member for Manly agrees—that often a monopoly is needed in circumstances such as this, particularly when there has been what economists commonly call a market failure. What governance does SICorp have? SICorp is required to comply with the Public Finance and Audit Act 1983, and therefore will be subject to audit by the Auditor-General. SICorp, as the home warranty insurer, will be required to comply with the requirements for insurers under the Home Building Act 1989. Fair Trading will continue to regulate the home warranty scheme. SICorp, as the insurer, will publish service standards and provide data and information to Fair Trading, which is required to report the performance of the Home Warranty Insurance Scheme to the Home Warranty Insurance Scheme Board.
In response to questions raised by the shadow Treasurer, the member for Manly, regarding SICorp's protection of public moneys received by insurers and brokers, insurance agents and intermediaries who handle home warranty premiums will be required to meet strict controls and have appropriate risk management systems in place. Insurance agents and intermediaries will be required to meet certain criteria, hold relevant insurances and be subject to audit. The New South Wales Government, under the terms of the contractual arrangements, will have a right to audit and inspect records and to apply sanctions for any breach. In regard to the cost of administering these outsourced arrangements, New South Wales Treasury is currently undertaking a procurement process to engage insurance agents to deliver home warranty functions on behalf of SICorp. Negotiations are underway and remuneration for the outsourced arrangements is one of a number of areas under negotiation. It is important for a number of members opposite that I address how claims will be managed under the new arrangements. Claims will be managed by insurance agents on behalf of SICorp through outsourced arrangements. The insurance agents will enter into commercial contracts with SICorp.
Negotiations to finalise that procurement activity are well advanced. SICorp is negotiating with three separate entities to enter into commercial contracts to provide home warranty functions to the industry on their behalf. Insurance agents will be required to comply with SICorp claims handling procedures; if they do not, they will be in breach of contract. The Department of Fair Trading will still be involved in resolving disputes, as it is today. Consumers will still be able to make a complaint about claims handling to Fair Trading; that is not changing. The model litigant policy will form part of SICorp's claims handling guidelines and procedures. In response to the member for Manly concerning the financial impact, it is not intended that home warranty insurance will raise any revenue for the Consolidated Fund. Premiums will be set to cover risk and costs only. The Government has made an initial investment to set up the new arrangements. That sum will be paid back from the new scheme at a date to be determined in the future.
In response to the contribution by the member for Tweed, I advise that New South Wales has kept other jurisdictions fully informed of its plans to address the market failure that has occurred nationally in relation to the provision of home warranty insurance. New South Wales has initiated meetings with interstate agencies to ascertain whether a nationally consistent approach could be adopted to address this national problem. While New South Wales has offered full cooperation and assistance to other jurisdictions, it is clear that other States, until recently, had been slow to realise the extent of the problem and its impact on the building industry and on consumers. New South Wales will continue to respond to requests for assistance from our interstate counterparts and examine future options for harmonisation. However, the Government will not allow a situation to arise where New South Wales builders cannot get home warranty insurance cover, potentially jeopardising a $20 billion industry that employs 250,000 people. The Government is taking decisive action to protect the jobs of New South Wales builders and the interests of New South Wales home owners.
In response to matters raised by the member for Baulkham Hills, the Government's main concern at this time is to minimise disruption to builders and home owners. The proposed government-underwritten scheme will address a number of concerns with the current scheme. Under a government-underwritten scheme there will be a close working relationship between the Department of Fair Trading and SICorp. The link between the dispute resolution and home warranty processes will facilitate the improved delivery of services to claimants. The review of the Home Building Act, presently underway, will provide an opportunity to examine whether the overall consumer protection regime, including dispute resolution, can be improved. The proposed arrangements will provide for a more streamlined operation of the scheme generally, which will facilitate future enhancements where required. The bill provides the New South Wales Self Insurance Corporation, SICorp, with the necessary authority to operate the Government's home warranty scheme from 1 July 2010. It establishes SICorp as the sole provider of home warranty insurance in New South Wales. I commend the bill to the House.
Question—That this bill be now agreed to in principle—put and resolved in the affirmative.
Motion agreed to.
Bill agreed to in principle.
Passing of the Bill
Bill declared passed and transmitted to the Legislative Council with a message seeking its concurrence in the bill.
ASSISTANT-SPEAKER (Mr Grant McBride):
Order! Government business having concluded, the House will now proceed to private members' statements.