The privatised home warranty insurance market has been rocked by the withdrawal of CGU, which yesterday become the second insurer in two weeks to announce its exit from the market.

CGU will stop taking new applications on Friday and will no longer handle renewals for existing customers from November 30.

The decision to exit the market comes just after Lumley Insurance, which plans to totally withdraw from the market by January 1.

A CGU spokesman says the home warranty market is a “difficult operating environment”, and a strategic review determined “it is unsustainable in the longer term”.

“CGU will work with brokers, builders, regulators, reinsurers and the Insurance Council of Australia to assist an orderly transition of CGU business to other underwriters,” she said.

Builders Collective of Australia President Phil Dwyer says the withdrawal of a second insurer is likely to limit builder access to the compulsory cover and throw the Federal Government’s building stimulus initiatives into doubt.

“I believe we can now consider the building industry is in severe crisis,” he told insuranceNEWS.com.au.   

QBE Australia and Vero will be asked to take up the slack as the two leading providers of the product still in the market.

The exit of Lumley and CGU follows the revelation that 45% of all home warranty claims were rejected in the year to June 30.

Financial Services Minister Chris Bowen last month instigated a review of the product, citing “under-performance”.