What is Happening with Domestic Building Insurance this Year?

Changes to Domestic Building Insurance (DBI)

Domestic building insurance (DBI), often still known as homeowners warranty insurance (HOWI), is an important protection for home building clients in Victoria.  If home building work is defective or incomplete and the builder has disappeared or gone broke, then the DBI will be available.

DBI is available for any homeowner, subject to a major exception, for six years after the home is built or renovated.  The major exception is apartments in multi-unit buildings of four storeys or more.  DBI is not available for these homeowners and there is no insurance product readily available to protect them.

This DBI product has been criticised in recent years. It must be recognised however, that DBI provides important financial protection for consumers who have had a home builder go into bankruptcy or liquidation. It can be improved but homeowners are better off with DBI than without.

The Victorian government is currently proposing to improve the DBI product as well as introduce some protection for apartment owners. These changes are part of a package of proposals intended to give consumers greater confidence that home building work will be without defects and meet their expectations. 

The proposed changes to DBI are as follows:

1. DBI will no longer be provided by the Victorian Managed Insurance Authority (VMIA) but by the new Building and Plumbing Commission (BPC) expected to be established later this year
2. The BPC would therefore not only be responsible for registering (licensing) builders but for also insuring them
3. Homeowners will be able to make a claim for insurance if a builder has a rectification order made against them and they fail to comply with that order
4. Other triggers for homeowners to claim insurance, such as the builder being bankrupted or liquidated, will remain.

If implemented, it is likely the most immediate impact of the changes will be increased premiums for DBI. With the new DBI scheme it is also likely that existing eligibility limits for builders will be reviewed and possibly reduced. This would not only increase the cost of housing but also probably reduce the amount of home building work that can be carried out.

In the longer term, the new rectification order process may cause more problems. If these orders are only issued for the most serious defects, then the impact on good builders and the cost of DBI may be minimal. If these orders were more readily available, then the cost increases would be dramatic; and especially so if homeowners and general insurers learn to routinely seek rectification orders to claim DBI insurance.

While all the above is concerning for home builders and clients, consumer protection for homeowners of detached homes and low-rise multi-unit buildings will be more comprehensive than that available for owners of apartments in multi-unit buildings of four storeys or more. This may be an important factor in consumers decisions about what type of home to buy.

HIA members can contact us on 1300 650 620 for more guidance about these changes.