Building Indemnity Insurance

The Hon. D.G.E. HOOD (17:04): My question is to the Treasurer: what are the reasons for the recent announcement of increases in the levels of building indemnity insurance?

The Hon. R.I. LUCAS (Treasurer) (17:05): There has been some recent publicity about the recent decision to raise premiums for builders' indemnity insurance. I think it's worthwhile placing on the public record the brief history of builders' indemnity insurance in South Australia and the reasons for the decision.

I am advised by SAFA that back in 2013-14, immediately prior to withdrawing from the market in that year, QBE increased building indemnity insurance premiums by 50 per cent. Caledon, which was the only other operator in the market at the time, increased their premiums by 30 per cent and then withdrew from the market on 30 September 2013. I am advised that at that time QBE advised SAFA that premiums would need to increase by 300 per cent to attract private market interest in underwriting the risk.

The former government took the decision at the time, and the opposition was supportive, that, given that the private insurance market was no longer prepared to insure or provide building indemnity insurance, it was imperative from a homeowner's viewpoint that that insurance continue. The former government continued, in essence through taxpayers taking on the risk, of underwriting that insurance through SAFA, and QBE was contracted to provide the service, but the risk was, in essence, undertaken or accepted by taxpayers through the government.

Since 2013-14, that process has continued. At varying stages there have been premium increases. I am advised that in 2016-17 there was a premium increase of 11 per cent based on actuarial advice to ensure a break-even premium pool. The circumstances this year have again brought to the fore, based on independent actuarial advice, that in particular the recent experiences and the projections for the immediate future by the actuary was that there needed to be a 10 per cent to 11 per cent premium increase for building indemnity insurance.

Just by way of example, I am told that back in 2013-14, when the private sector insurers fled the market, there were only 16 claims reported but in the last year in South Australia there were 280 claims reported—so there were 16 claims back when the private insurers fled the market, and in this last year 280 claims. The total value of the claims back in 2013-14, when the private sector insurers fled the market, was $211,000, and the total value of the claims this last year, with 280 claims, was $19.1 million.

The actuary has highlighted that there are multimillion dollar losses being underwritten by taxpayers through accepting the fact that there has been market failure. Private sector insurers are not prepared to ensure but, nevertheless, homeowners need to be protected. We have had a continuing series of builders going broke in the last 12 months—some 19 builders. The government has taken action, after consultation with stakeholders such as the MBA and others, to place higher requirements in terms of builders and in terms of getting a builder's licence. My understanding was that the MBA and the stakeholders had supported those particular initiatives from the government.

However, the choices are stark: either the taxpayers of South Australia continue to underwrite at an ever-increasing rate the provision of this important insurance option, or the government was to vacate the field and there would not be any building indemnity insurance. That is not a set of circumstances the former government countenanced and it is certainly not a set of circumstances that the current government is considering.

The inevitable reality is a significant increase for building indemnity insurance of some 10 per cent. Compared, as I said, to some of the examples in the previous years under the former government for understandable reasons—for the same reasons—there have been similar significant increases in what is an important insurance product.