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Cautionary Note 40 – Why home building warranty insurance will never work
June 1, 2001
Based on data collected from inspection of over 45,000 buildings we issue the following advice.
We have been watching the delivery of home building warranty insurance (HBWI) for consumers building or renovating their home for over 20 years. This insurance was provided by the Department of Fair Trading (DFT) until 1 May 1997 and by private insurers approved by the DFT after that date.
In almost every claim on this type of insurance both parties have expressed distress and dissatisfaction with the outcomes.
Criticism extends to every aspect of the process including:
- the claim process is unpublicised, unclear and can change without notice
- claims are slow (this is an understatement), expensive and very stressful to participants and family
- consumers have difficulty identifying the extent of the problems they need to claim on and the best way to fix them up to stop recurrence of the problems
- home building warranty insurance is no guarantee the work is of good quality – there may still be many areas of defective and incomplete work which will not be found until much later eg when reselling the property or when an unexpected failure occurs such as a termite infestation
It is better to prevent parties who are building or renovating from needing to make a home building warranty insurance claim. This is best achieved by:
- quality assurance of the documents and building work
- careful selection of contractor (and client if you are a contractor)
- early issue identification to avoid escalation of what usually starts out as only a minor problem
- solution driven negotiation by legal representatives
- careful management including quality assurance of the rectification
- appropriate financial pressure such as withholding payment until problems are properly resolved.
If the all too common problems are stopped, there is little or no risk of a claim. And if a claim is unlikely, why worry so much about taking out insurance which historically has never worked.
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