The Tasmanian government has opened a tender for insurers to provide home warranty cover under a new scheme that it expects will take effect next year.

The program will cover homeowners for the loss of deposits, non-completion and defects, subject to various financial caps, where a builder has died, disappeared or become insolvent.

“We want to see Tasmanians secure the dream of homeownership without the threat of losing their money during the building process,” Small Business and Consumer Affairs Minister Michael Ferguson said.

Builder collapses amid rising supply costs have increased pressure to reintroduce a scheme after a previous version was axed in 2008.

Legislation was passed last year, when then attorney-general Louise Archer said that since July 2021, eight building companies operating in Tasmania had entered administration, affecting more than 90 consumers.

The government has said cover will be provided through a contract manager “fronting model” where the risk is underwritten by an insurer and fully reinsured by the government, in an arrangement similar to those in SA and WA.

For a claim relating to incomplete building work, a policy must provide cover at a minimum of $200,000 or 20% of the contract price of the construction project. The scheme provides for different cover requirements in circumstances where work has not started but a deposit has been paid. 

Mr Ferguson said last week that building contractors will be required to purchase a policy, with the homeowner named as the beneficiary, for each residential contract exceeding $20,000. The cover includes new homes, additions and substantial alterations. 

The tender period closes on October 16 and the scheme is expected to start about the middle of next year.