The days may be numbered for privatised home warranty insurance, derided as “junk insurance” by builders and consumers.

Compulsory home warranty insurance was originally intended as a consumer protection policy, but both state and federal governments have begun to act on complaints it no longer lives up to the name.

State schemes were privatised from the 1990s in all states except Queensland and the NT, and have since evolved into a policy of “last resort”.

In NSW for example, claims of up to $300,000 are contingent on the builder’s death, disappearance, or insolvency.

That’s fairly limited. Shoddy work, for example, won’t be covered as long as the builder is still around.

The figures speak for themselves. By September last year, NSW had received 867 home warranty claims since 2002 and paid 326, or 38%.

In Queensland, where a state-run “first resort” home warranty scheme exists, 1342 claims were received over the past two years and 1312 were paid out – 98% of all claims.

Consumers in other states aren’t happy. Victorian resident Peter Watts submitted a claim after his builder vanished, only to face a two-year wait and a major shortfall.

“There is absolutely no protection for the consumer or penalty for those who do the wrong thing,” Mr Watts wrote in a government submission. “My experience with home warranty and especially [the insurer] and I use that term very loosely, was the worst I have ever experienced.”

Independent Gippsland East MP Craig Ingram says Mr Watts isn’t alone. “Since 2002, Victorian home builders have paid $750 million for insurance that has failed to protect consumers, failed to protect builders, and placed Victorian home builders at the bottom of the home affordability ladder,” Mr Ingram said.

It was a nervous time for customers of Beechwood Homes when the big NSW builder entered voluntary administration on May 13. It had 300 houses under way, and held a further 400 deposits.

Insurer Vero has relieved some concern, promptly declaring the builder insolvent.

But lobby group the Builders Collective of Australia says too often insurer insolvency rulings are inconsistent. President Phil Dwyer wants change, stating “private schemes force builders to carry all the risk in the form of capital guarantees”.

To their credit, insurers and governments at various levels appear amenable to change. A review under way in NSW for example proposes a fourth claims trigger – striking out a builder’s licence.

And sources close to discussions say Victoria is likely to follow suit.

Home warranty insurers Lumley and Calliden back the measures, even though it’s likely to cost them a significant increase in claims.

This year the Tasmanian Government went a step further axing the private home warranty insurance scheme. Justice Minister Steven Kons said the scheme is  “simply not good enough for Tasmanian consumers”.

It replaced the scheme with a state-controlled disputes procedure.

Neither is the Federal Government standing still. On March 19 the Senate referred an inquiry to the Standing Committee on Economics into last-resort privatised home warranty schemes. The final report is due on October 16.

It is likely to look closely at the Queensland model, where the state Building Services Authority controls licensing and disputes as well as insurance, providing cover up to $400,000.

It’s the only scheme in Australia that compensates for subsidence and settlement, and people have access to insurance if the builder falls short of acceptable standards, even when the builder is still operating.

In short, Queenslanders get much more comprehensive insurance at a lower cost.

Now the pressure is on to deliver a similar outcome for the other states.