Victoria’s compulsory builders’ warranty insurance scheme could be scrapped and made voluntary under a plan the State Government says will better protect consumers.

A consultation paper on the building industry consumer protection framework says many consumers find the process confusing.

The paper notes the low percentage of claims, estimated at 0.4-1% for registered builders. 

The scheme has come under fire in the past for its low rate of payouts.

While Finance Minister Robert Clark has defended the figures, he has also flagged plans to improve the system.

The report says voluntary insurance could replace mandatory insurance, reducing the regulatory burden and saving consumers time and an average price of $627.

The risks of this approach include private insurers deciding not to provide appropriate products, some consumers being left exposed, fewer builders or consumers taking out insurance, and the need emerging for a new way to assess builders’ financial viability.

The report says replacing the last resort insurance scheme with a first resort scheme is another option, allowing consumers to trigger their insurance policy early in a dispute. The paper says this would provide better consumer protection at a proportionally higher premium.

The current last resort scheme only covers consumers if their builder dies, disappears or becomes insolvent. Under a first resort scheme, the insurance could be triggered after a consumer had tried to seek rectification or compensation for incomplete or substandard building work.

Queensland has adopted a government-run, limited first resort scheme, the report says. The Queensland Building Services Authority deals with disputes over some forms of defective work, but premiums are generally higher.

The report warns that private insurers may choose not to provide first resort insurance, making a public provider necessary.

Another option canvassed in the report is modification of the compulsory last resort insurance scheme by adding more insurance triggers, shifting responsibility for obtaining insurance from builders to consumers, or offering insurance only through a government-underwritten scheme.

The final alternative is a professional indemnity scheme for building occupations. This would insure the builder instead of the consumer and protect the interests of business against the risk of litigation, the report says.

Key builders’ warranty insurance providers include QBE – which manages the scheme for the Victorian Managed Insurance Authority – and Calliden.

Calliden Group Executive, Customers, Mike Hooton told insuranceNEWS.com.au that his company is reviewing the consultation paper, while a QBE spokesman declined to comment.

Submissions on the consultation paper are open until June 29.