BUILDING INDEMNITY INSURANCE

The Hon. J.D. HILL (Kaurna) (14:46): My question is to the Minister for Finance. What is being done to maintain confidence in the building industry following the withdrawal of QBE from the warranty insurance market?

The Hon. M.F. O'BRIEN (Napier—Minister for Finance, Minister for Police, Minister for Correctional Services, Minister for Emergency Services, Minister for Road Safety) (14:47): I thank the member for Kaurna for the question. I am able to inform the house that last week the government announced building indemnity insurance will continue to be offered after QBE withdraws from the market in June. Building indemnity insurance protects home owners in the event of incomplete or defective residential work in circumstances where the builder has died, disappeared or become insolvent. Under South Australian legislation the defects liability period is five years from the date of completion of the residential building work.

Given that building indemnity insurance is required by legislation, in the absence of private insurers offering this cover, the state government will manage this risk in the short term at least to ensure continuity of cover for home owners. The government is currently in discussions with QBE Insurance. The company has indicated its willingness to act as an agent for the government from 1 July of this year to 30 June 2014. The terms of the proposed agency arrangement are presently being negotiated and a formal agreement is expected to be signed in coming weeks.

QBE indicated earlier this year its withdrawal from the market was because of significant increases in builder insolvencies and subsequent home owner claims. I will also add that a similar set of circumstances in Western Australia has also led to QBE announcing its withdrawal from the Western Australian market. QBE raised premiums by 50 per cent in March, in line with their actuarial valuation in the light of increasing insolvencies.

There are a number of options available to the state government to address QBE's withdrawal from the building indemnity insurance market, as evidenced by the different approaches adopted interstate, particularly in Victoria and New South Wales. These options are currently being considered and we have received a great deal of assistance from the governments of both of those states.

A preferred long-term insurance model will be developed and implemented as a priority. I have met with the Housing Industry Association and the Master Builders Association to update them on the government's intentions. Both have welcomed the proposed agency arrangement as providing surety for the next 12 months while a longer-term solution is developed. In a statement on 23 April, the Regional Director of the HIA, Mr Robert Harding said:

HIA welcomes the South Australian Government's announcement of the arrangements to underwrite the continuation of Builder Indemnity Insurance in South Australia. The most important point to note is that it is business as usual for the South Australian home builders and our Builder Members can move forward with confidence while a new model is developed.

End of quote: end of answer.