Insurers say they are prepared to pay claims to NSW homeowners left out of pocket by dodgy builders.

Calliden Construction and Warranty Risks Manager Andrew Parker says insurers support a proposal granting the Office of Fair Trading (OFT) more leeway to cancel the licences of builders who refuse to comply with rulings of the NSW Consumer, Trader and Tenancy Tribunal.

Insurers will then pay home warranty claims.

"It would give an additional safety net to the consumer," Mr Parker told insuranceNEWS.com.au. "It's a difficult product as it is only triggered in limited circumstances yet owners think their home warranty protects them and will build their house for them if something happens."

The NSW Government is reviewing a recommendation to improve the scheme following a Parliament committee report in December.

A working group featuring insurance executives and ICA has discussed scheme improvement. New measures could be introduced by July.

Peter Meredith, Director of Housing at Master Builders Association NSW, says builders have not been privy to the group.

He supports consumer protection measures but says the proposal puts too much emphasis on the tribunal process, which itself needs improvement.

OFT Media Officer Christian Frankel says the board is considering a number of scheme improvements but is yet to make a decision.

"The board is always looking at options," Mr Frankel said. "There's nothing concrete at the moment."

Home warranty insurance is compulsory in Australia and is monitored in NSW by the OFT Home Warranty Insurance Scheme Board. Builders take out the policy on behalf of homeowners before starting work.

It is designed to protect consumers from faulty or incomplete projects but is only triggered if the contractor becomes insolvent, dies or disappears. The majority of building disputes do not meet the criteria.

QBE, Vero, Calliden, CGU and Lumley are the approved home warranty insurers.