The SA Government has launched a six-week public consultation on ways to improve the state’s builders’ warranty insurance scheme, which is designed to protect homeowners if their contractors go bust, die or disappear.

It wants feedback on types of building work that should be covered, whether the current scheme is fit for purpose, and if maximum cover limits should be adjusted, plus suggestions to improve builder compliance.

Views on challenges faced by brokers and the broking distribution system are also sought.

The consultation is part of a review launched last year by Treasurer Stephen Mullighan and Consumer and Business Affairs Minister Andrea Michaels. First-round interviews with builders, insurance brokers and homeowners have already taken place.

Failings in the current scheme were exposed after the collapse of several construction companies.

Some insolvent builders did not take out mandatory building indemnity insurance (BII), leaving their customers without the financial protection that would have allowed them to complete their half-finished homes or to repair defects.

The government was forced to provide retrospective BII to affected homeowners. It says estimated total claims arising from the insolvencies of Qattro Built, Felmeri Homes and 7 Star Constructions are expected to be $30.5 million in 2023-24, including payments already made and those in progress.

There has been an increase in the number of building contracts that lack the mandatory BII, the government says.

“Building a new home should be a time of excitement and we’ll be considering what protections should be offered to people to safeguard them throughout the building process, as well as what can be done to better support consumers when their builder has failed to comply with the legislation governing BII and in cases of substandard work,” Ms Michaels said yesterday.

The consultation paper says it has been 10 years since the last review of BII arrangements and more than six years since the insurance cover limit was reviewed.

“Combined with increased residential building sector activity in recent years and the emergence of a number of consumer protection challenges such as fraudulent insurance certificates and uninsured building works, it is timely to review arrangements to ensure they best meet the needs of South Australian consumers and builders.”

Currently, almost all BII is provided by QBE through an arrangement with the SA Government as the underwriter.

“While at least one other insurer is operating in the South Australian market, there are no insurers with scale or appetite to underwrite the majority of the market,” the consultation paper says.

SA laws require an insurer to provide a minimum $80,000 of BII, and the two insurers operating in the market provide a policy limit of $150,000.

BII is required for domestic construction work valued at $12,000 or more. Cover starts as soon as the insurance is taken out and a builder cannot do work until a policy is in force.

The closing date for submissions is March 25 and recommendations to the Government are expected in the June-July period.

Click here for consultation details.