The National Insurance Brokers Association (NIBA) has criticised the NSW Government’s plan to phase out broker commissions under its overhaul of the loss-making builders’ warranty insurance scheme.

CEO Dallas Booth says the assertion that removing commissions will cut Home Building Compensation Fund policy costs by 15% understates the vital role brokers play.

“We are trying to better understand the Government’s intent,” he told insuranceNEWS.com.au. “Brokers play a vital role and they are entitled to be remunerated for the work they do.

“We have made it very clear that homeowners’ warranty in NSW works because of the role insurance brokers play collecting, collating and providing detailed information from the builders to the insurers.

“The suggestion that by phasing out commissions you will automatically cut 15% of the cost of the policy is a statement we strongly object to, because this system will not work without the support of insurance brokers.”

Innovation and Better Regulation Minister Victor Dominello announced the overhaul last week. He says legislation will be introduced to the NSW Parliament in the first half of next year.

Other key reforms include allowing private insurers to enter the market, introducing risk-based pricing to reflect a builder’s individual risk and additional government funds to return the scheme to surplus.

The Insurance Council of Australia (ICA) supports the idea of a risk-based pricing mechanism.

“ICA and its members are examining the Government’s proposal to open up the [the scheme] to competitive underwriting,” spokesman Campbell Fuller told insuranceNEWS.com.au.

“ICA believes risk-based pricing would create an incentive for better building and financial practices in the construction industry, and also believes the scheme must remain mandatory.”

Mr Fuller says the scheme is “unsustainable” in its current form.

Its underwriting loss worsened to $83.8 million in 2014/15 from $29.6 million the previous year.