The NSW State Insurance Regulatory Authority (SIRA) has commenced investigations into unlicensed brokers who are alleged to have sold fraudulent home building compensation insurance to residential builders.

State insurer icare is the only insurance provider in the compulsory builders’ warranty scheme and it has a list of approved broker distributors.

“SIRA is investigating allegations of unauthorised brokers providing fraudulent home building compensation insurance to builders working in the residential building industry,” the regulator said in a statement.

“Only an icare-approved broker can arrange home building compensation insurance for your business.”

SIRA says false or misleading conduct by insurers and insurance brokers is also an offence and that insurance distributors must not advertise or sell products to the building industry that are not genuine home building compensation insurance.

icare-approved brokers include Coverforce Insurance Broking, HIA Insurance Services, Insurance House Group and WTW. The full list can be found here.

In NSW builders’ warranty is required for residential works over $20,000 and must be acquired by builders before they start any work or take any money under the contract, including the deposit.

SIRA says a failure to insure projects properly may lead to penalties of up to a maximum of $110,000 in the case of a corporation and $22,000 in any other case.

It may also mean that a current or future homeowner may be unable to claim on the insurance scheme if a builder cannot complete the project or honour its statutory warranty obligations.

In Victoria the state’s mandatory builders’ warranty scheme is set for reform after it emerged Melbourne-based bankrupt home builder Porter Davis left hundreds of customers with no insurance.

Porter Davis was required to obtain the insurance before accepting deposits but it has since been discovered it did not. The Victorian Building Authority is currently investigating the builder for potential breaches of the building legislation.