The 10–point plan for a possible reform of builders’ warranty that was presented to insurers and underwriters last week in Melbourne is expected to be finalised in the next couple of days.

NSW Fair Trading Minister John Aquilina and Victorian Finance Minister John Lenders presented the rescue plan to a closed -doors meeting of insurers and property industry players. The warranty scheme is widely acknowledged to be in trouble as the two remaining insurers, Dexta and Royal & SunAlliance, impose strict underwriting guidelines that have forced many builders out of business.

The insurers are understood to be content with the governments’ rescue proposals, but details on a revised scheme for high–rise buildings still need to be thrashed out. 

The rescue plan is understood to keep a tight focus on consumer protection issues, but steers well clear of government involvement in the actual insurance side. There is general acknowledgment that the events of 2001 changed the situation, leaving insurers reluctant to cover long-tail risks that offer marginal returns. Mr Lenders said the aim of the rescue plan is to head off emerging problems in the building sector before they cause major disruption to construction activity.

The key message from both governments was quite clear, said Chris Bovill, MD of Bovill Risk and Insurance Management in Melbourne. A former underwriter for HIH, Mr Bovill said the governments “want no role in the carrying of the risk. They desperately want to leave it with insurers, and their 10-point plan supports this notion.” 

Mr Bovill believes that the revision of the scheme will standardise home warranty regulation across the board. 

Whatever the outcome, the joint rescue plan should also ensure that it includes revision of high-rise building cover – the area where insurers lose huge amounts in claims for poor workmanship and associated losses.