Another damning review of compulsory builders’ warranty insurance has highlighted government dithering over privatised last-resort schemes.

The Victorian Essential Services Commission has released the latest report into the controversial privatised last resort system, which once again reveals a massive disparity between the number of claims submitted and those paid by insurers.

The Victorian report reveals insurers have accepted just 273 claims from 1363 received between 2002-08, for a total outlay of $10.23 million. It’s a profitable line of business, with insurers earning around $7 million in premium each quarter.

Judging by the report, the product is clearly failing to meet consumer expectations. That’s having a negative effect on the industry via a stream of critical reports in the daily media.

State and federal governments appear locked in a holding pattern after 56 separate reviews of the product, according to figures from one insurer. Duty-bound to their constituents, politicians have reacted by doing little more than endorse the status quo. Tasmania is the one exception after its government last year moved to axe the scheme.

According to the Victorian report, the claims ratio is well short of the 65-80% claims ratio offered by other consumer protection policies. Earlier figures published by the Financial Ombudsman Service indicate a similar trend.

Insurers pointed to the long-tail nature of the policy when insuranceNEWS.com.au raised the issue last week.

“It is quite possible for insurers to receive claims up to nine years after the policy is issued,” Calliden Group Executive Marketing and Distribution Mike Hooton said. “An actuarial view of the product would indicate that insurers could well pay out at this level upon maturity of the accident years.”

Vero spokesman Sue Repanellis challenged the figures in the report, saying the Vero claims ratio is close to 85%.

Regardless, the Victorian Government has launched another inquiry into the product. That follows another review of the product initiated by Financial Services Minister Chris Bowen in May, just months after a Senate inquiry recommended only modest changes to the scheme.

That failed to placate builders, many of whom bitterly oppose the requirement that they pledge security or indemnities to insurers, which they say essentially “transfers all the risk”. According to the Victorian report, 44% of builders are required to submit to this process.

Moves are afoot within the building industry to challenge insurers over this issue, backed by some of the country’s largest home builders.

“Builders are quite happy to be accountable, but not under this scam,” Builders Collective of Australia President Phil Dwyer told insuranceNEWS.com.au. “This regime must be dumped immediately as Tasmania did, in support of consumers and builders and the wider building community.”

The report indicates that consumers only become aware of the policy’s tight limitations – builder death, disappearance or insolvency – when it comes time to claim.

Mr Dwyer says a move to the Queensland system of first-resort cover would achieve their expectations.

Ms Repanellis says insurers could not support a first-resort scheme forecasting “premiums that are out of this world because it would simply allow builders to walk away from shoddy workmanship”.

“People should remember that this product is a last resort to protect homeowners when they have no other recourse,” she told insuranceNEWS.com.au.

“Builders should take responsibility to build a quality home and if they don’t then they have a responsibility to go back and fix it.”

Ms Repanellis denies building industry rumours that Vero is considering joining Lumley and CGU in departing the market. It’s hard to envisage the privatised system surviving without the country’s leading provider.

So today we are left with another public report outlining the apparent flaws in the builders’ warranty insurance system while another government inquiry is now under way. Will Victoria break the mould?