Private insurers may again participate in the NSW Home Building Compensation Fund (HBCF) if they are allowed to limit insurance to high-risk builders, the National Insurance Brokers Association (NIBA) says.

NIBA has given its backing for the proposal in a submission to the Independent Pricing and Regulatory Tribunal, which is leading a review of the loss-making scheme.

One of the aims of the review is to determine how non-government insurers could be encouraged to return to the scheme. They have refused to participate since it was re-opened to competition in 2018, leaving state insurer icare as the sole provider of mandatory cover for residential dwellings of up to three storeys high.

“The financial position of the incumbent provider highlights the financial difficulties insurers face under the current framework,” NIBA says in the submission. “This feature should be extended to private providers of HBCF, allowing them to limit insurance to high-risk builders.

“Given that the current provider is yet to reach break-even levels across all major building classes, this means the private insurer would be at a significant disadvantage before they have even begun.

“The only way for private insurers to operate a profitable model would be for them to create a pool of high quality, low-risk builders.”

NIBA also voiced concerns over plans by icare to reduce premiums for a range of building classes, including single dwellings, in the second-half of this year, citing the scheme’s deteriorating financial position.

The scheme reported a $636 million deficit in the last financial year and expects to receive funding from the NSW State Government post-July 2021 until all losses incurred prior to-the establishment of full cost recovery premium rates are met.

“Given the deficit stated… and the context of this review, the decision to cut premium levels in the middle of a review is difficult to reconcile,” NIBA says.

The brokers’ body also is also pushing for a number of measures to strengthen the HCBF scheme. It says the current HBCF line, which provides both product liability-type cover and financial insolvency cover, should be grandfathered and replaced with separate insolvency and defect products. This would mean each risk could be underwritten and priced according to the nature of the cover provided.

NIBA also wants real-time monitoring of builders’ financial positions and better use of data analytics to help underwriters identify illegal phoenix activity.

Click here for the NIBA submission.