Builders’ warranty insurance (BWI) in Victoria is “widely misunderstood, provides only limited protection for consumers and is significantly more costly than it needs to be”, according to the state’s Auditor-General John Doyle.

The consumer protection framework for construction does not adequately protect consumers and they do not understand it, he says in a report that examines the performance of the Victorian Building Authority, Building Practitioners Board, Consumer Affairs Victoria and the Victorian Managed Insurance Authority (VMIA).

Mr Doyle recommends the Department of Treasury and Finance work with the VMIA to review the adequacy and cost of the insurance, and advise the Government on options to lower premiums and improve coverage.

The report says successive governments have been told about the problems, but reforms have stalled. “These issues now require urgent attention.”

Between 2002 and last year, about 6000 claims were lodged and 3943 accepted, with $153.1 million paid out.

The average claim cost was $33,000 and the most common trigger was a builder’s insolvency.

The average premium is about $987.

In 2010 the Government directed the VMIA to provide BWI. Mr Doyle says that addressed the risk of private insurers quitting the market but did not improve consumer protection, and resulted in “a more expensive, broker-driven model for the provision of insurance”.

The VMIA did not have the staff, processes or systems to comply with the direction to provide BWI to 15,000 builders from March 31 2010, so relied on co-operation from insurers and appointed an agent – QBE – to ensure cover was available.

The report says the VMIA got a reasonable outcome in difficult circumstances but using the agent and brokers probably added $21 million to the cost of the scheme.

The two major brokers are the Master Builders Association of Victoria and the Housing Industry Association.

The report recommends the VMIA obtains certainty about its role in BWI and implements the most efficient delivery model.

“Decisions are needed on the future provision of and model for domestic building insurance.”

Builders Collective National President Phil Dwyer told insuranceNEWS.com.au the findings are no surprise. “We have to have a one-stop shop and a statutory fund that gets rid of the rent-seekers and will provide any amount of cover for consumer protection.”

He says the fund could also cover tradespeople and save them from following builders into insolvency. The system should have mandatory dispute resolution to deal with issues early, and binding orders.