NSW has opened consultation on a list of 15 proposals to improve the state’s home building compensation (HBC) insurance scheme, which is compulsory for principal contractors in the residential construction industry for works exceeding $20,000.

Key reform measures being considered include updating the minimum insurance cover from $340,000 to a higher figure, extending the scheme to cover victims of unlawfully uninsured home construction and allowing homeowners to claim earlier in the dispute process.

The State Insurance Regulatory Authority’s (SIRA) discussion paper seeks feedback also on potentially raising the amount of cover for non-completion of works and changing the $20,000 threshold for requiring principal contractors to buy insurance.

Another proposal listed in the paper relates to broader insurance exemptions for high rise buildings. Feedback is sought on whether the exemption for construction of multi-dwelling buildings over three storeys should be expanded so insurance is not required for renovations or alterations to such buildings.

The discussion paper follows a review of the HBC scheme by the Independent Pricing and Regulatory Tribunal, which published its final report in December 2020.

State-owned icare remains the only insurer offering insurance under the scheme, despite efforts to encourage private entrants to participate in it. Private insurers took part in the scheme until June 2010 and since then it has been government-operated and the subject of reforms, premium increases and state support since 2017 to move it to a sustainable financial footing.

One of the questions in the discussion paper relates to improving competition in the scheme so that icare is not the only insurance provider. The question asked whether it is commercially viable for multiple insurers and providers to operate in the scheme.

A follow-up to the question asks if relaxing the regulation of private insurers’ pricing and eligibility practices fails to achieve new market entrants, should the NSW Government reinstate icare’s monopoly and focus on running a sole insurer model as efficiently as possible.

“With almost 90,000 home building projects insured last year and increasing pressure in the housing construction market, the need for an effective insurance scheme has never been stronger,” Minister for Customer Service and Digital Government Victor Dominello said in a statement today.

He says the discussion paper proposes a range of reforms that offer “clear steps” to strengthen the scheme’s support for homeowners when their dreams don’t go to plan.

“Home Building Compensation is a complex insurance scheme which involves managing insolvency risks in an industry where those risks are inherent and longstanding,” Mr Dominello said.

“As a result, the scheme was run at a loss for many years and has had a chequered history ever since the collapse of HIH Insurance in the early 2000s.”

The scheme received 1078 notifications of insured loss and 492 insurance claims in the 2020/21 financial year.

The consultation comes as the building industry wrestles with tradie shortages and supply chain bottlenecks that have led to sharp rises in material costs.

Mr Dominello says company failures have been proportionately higher in the construction industry compared to other sectors. In the 2021 calendar year, 24% of total company insolvencies in NSW were in the construction industry.

Closing date for submissions is August 16.

Click here for more from the SIRA discussion paper.