This was published 1 year ago
Surge in insurance premiums hammers home builders
By Rachel Eddie
Victorians building homes will be slugged with even higher costs after builders were hit with a 43 per cent increase in insurance premiums to protect their customers from insolvency, adding hundreds of dollars to construction costs that the housing sector expects will be passed on.
The Victorian Managed Insurance Authority on Monday announced domestic building insurance (DBI) premiums would increase from September 1 as the government agency weathers a crisis in residential construction.
Porter Davis left hundreds of homes unfinished when it collapsed in March.Credit: Eamon Gallagher
The average premium is about $1200 to $1300, meaning the price rise would add about $550 while operators are already juggling labour and supply shortages. Premiums will still be lower than in NSW.
Builders must obtain insurance for all residential jobs valued at more than $16,000 before taking a customer’s deposit or any other money. The insurance, which the builder is required to pay, covers the client if the builder dies or is declared insolvent before work is complete.
The collapse of Porter Davis in March exposed gaps in the system and The Age has revealed that several builders in Victoria delayed obtaining the protections for their customers, in potential breaches of the law.
Porter Davis, Snowdon and Hallbury Homes customers faced losing tens of thousands of dollars until the Andrews government launched a rescue package to refund their deposits in the absence of insurance.
Keith Ryan, the Victorian executive director of Housing Industry Australia, said companies would not collapse solely because of the decision to increase premiums, but it would have a cumulative impact and ultimately hurt builders and their clients.
“Builders want to stay competitive, but they will have little option but to factor the premium rise into the cost of a new dwelling and pass on to home buyers,” he said.
Ryan said the decision was premature while the government looked at overhauling the insurance scheme.
Victorian Managed Insurance Authority chief executive Andrew Davies last month warned the number of claims would more than double this year.
A spokeswoman on Monday night said the premiums accounted for expected claims and risks.
“Recent pressures in the construction industry such as higher building costs and builder insolvencies are influencing the increase in premiums,” she said. “Victorian DBI premiums are a small proportion of overall building costs – for example, for a new single dwelling, DBI will now represent 0.4 per cent of the average building contract value, less than the 0.9 per cent in NSW.”
The premium for a new multi-unit dwelling would be 1.3 per cent of the average contract value, below the 5.5 per cent in NSW.
Master Builders Victoria director of policy Megan Peacock said the increase would hamper cash flow because builders have to take out insurance for a customer before accepting deposits.
“However, the DBI increases are still much lower than NSW,” Peacock said. “We’ve seen the impacts of insolvencies affecting the insurance industry post-COVID. This will continue to impact them.”
Jess Wilson, the state Coalition’s spokeswoman for home ownership, said increasing premiums would not fix the sector.
“In the midst of a housing supply crisis, residential builders and Victorians trying to build their own homes are being slugged with an insurance increase to pay for the Andrews Labor government’s failure to act on risks in the sector they were warned about 12 months ago,” Wilson said.
“The financial mismanagement of the [Victorian Managed Insurance Authority] has seen it slide $250 million into deficit and now hardworking Victorians building their own homes will pay the price.”
Premier Daniel Andrews last month said the government did not set the authority’s premiums.
“Insurance costs are set by the market ... Those prices fluctuate, as prices are all about trying to quantify how much risk costs,” he said. “The greatest pressure you can put on a consumer is if you sign a contract and your builder chooses not to take out insurance that you’ve paid for.”
The state government was contacted on Monday but did not respond by the time of writing.
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