Major changes to New Zealand’s building laws are being considered, including requiring builders to offer insurance to homeowners.

A government discussion paper suggests residents are not aware of the risks of building or renovating a home, or what they can do to manage those risks.

“When something goes wrong, homeowners can face a long, expensive and stressful process to get compensated,” the paper says.

“We are proposing to require that a guarantee and insurance product is put in place for all residential new builds and significant alterations.”

Builders would be required to offer homeowners a guarantee and insurance product before starting work on a new home or significant alteration. However, the homeowner could opt out.

“Homeowners would either pay the premium directly through their builder or the builder would incorporate the premium into the overall cost of the build,” the paper says.

“The homeowner would be the ‘policyholder’ of the guarantee and insurance product, allowing them to make a claim directly with the guarantee and insurance provider.

“Homeowners would still be able to take a claim for negligence through the courts, whether or not they have a guarantee and insurance product.”

The proposal would protect homeowners and incentivise builders to do quality work, the Government says.

However, it admits the success of the proposal “is dependent on being able to grow the insurance market to meet increased demand”.

Insurance Council of New Zealand CEO Tim Grafton says insurers will be reluctant to enter the market until problems in the building industry are ironed out.

“We have had a history in New Zealand of poor building performance issues,” he told insuranceNEWS.com.au.

“If you really want a robust warranty system that is affordable, you need high building standards that are rigorously enforced. Then you might start to get more interest from insurers. Until then, there will be limited desire to get into this market.”

Mr Grafton also warns that allowing people to opt out could result in a small pool and high-cost product.

To make a submission on the discussion document before June 16, click here.