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Legislative Council - Fifty-First Parliament, Third Session (51-3)
2009-11-19 Daily Xml
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Question Time

HOUSING INDEMNITY INSURANCE

The Hon. D.W. RIDGWAY (Leader of the Opposition) (14:30): I seek leave to make a brief explanation before asking the Minister for Consumer Affairs a question about housing indemnity insurance.

Leave granted.

The Hon. D.W. RIDGWAY: The New South Wales government has just announced that, due to the private industry withdrawal from the housing industry insurance scheme, the government will publicly underwrite the scheme from 1 July 2010. Due to the declining pool, the Victorian government has just announced a review to consider publicly underwriting its scheme. Is the state government concerned about the ongoing viability of housing indemnity insurance, and is the government reviewing the scheme with a view to publicly underwriting it?

The Hon. G.E. GAGO (Minister for State/Local Government Relations, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister Assisting the Minister for Transport, Infrastructure and Energy) (14:31): I thank the honourable member for his question. I am advised that on 8 November 2009 the New South Wales government announced major structural reforms to the home warranty insurance scheme in that state. The changes are intended to safeguard building industry jobs and better protect home owners.

The Hon. D.W. Ridgway interjecting:

The Hon. G.E. GAGO: The honourable member does not seem to want to listen to the answer. There are differences between jurisdictions, and it is important to understand what is happening in each jurisdiction so that we can compare the status of each. He wants a monosyllabic answer. He obviously does not understand the complexity of the issue if he wants a monosyllabic answer.

The PRESIDENT: The minister should explain the complexity of it and stop debating.

The Hon. G.E. GAGO: I will; thank you for your guidance and direction, Mr President. The change involves the government underwriting the scheme and I understand that it is forecast at around $600,000, with an ongoing estimation of $650,000. The advice to the New South Wales government from its Home Warranty Insurance Scheme Board indicated that a substantial contraction in the market had occurred because of the global financial crisis and with the exit of CGU and Lumley from the home builders warranty insurance markets previously. The advice to the New South Wales government was that the current marketplace is contracting and the concern was that that might lead to further insurers exiting the marketplace.

I am advised that part of that crisis relates to local issues in New South Wales, but I also put on the record that there are still three other national insurance operators in South Australia, so the industry has contracted from five to three. Some might say that the marketplace, given the climate, could not sustain competition among five. The contraction to three, some are saying, makes it more competitive and provides a restabilising of the marketplace. Some people have the viewpoint that that contraction alone has assisted in restabilising the marketplace.

The point I was making is that there are issues in terms of New South Wales that are quite different from South Australia. Evidence to the New South Wales government is that an increasing number of builders in New South Wales are unable to obtain insurance cover and therefore are unable to continue working. New South Wales has experienced a number of significant failures of major builders, and I am sure members are aware that Beechwood Homes have been in the papers recently. There has been a 200 per cent increase in the number of insolvencies in the building industry in the past 24 months and, consequentially, a 350 per cent increase in the number of claim lodgments and loss notifications received by insurers. New South Wales was under considerable pressure. I advise, however, that South Australia has not experienced failures similar to those in New South Wales, with only a minimal number of small operators failing during this period.

The advice I have received is that there should be no impact on South Australian builders and consumers in the short term. The responsible behaviour of both CGU and Lumley and the building industry has put a number of strategies in place to lessen any impact on their clients, and that should ensure a smooth transition out of the marketplace, and transition arrangements have been made for those people who have had cover from those companies.

I can also advise that to date the Office of Consumer and Business Affairs has not received any complaints or concerns from individual builders, the Master Builders Association (MBA) or the Housing Industry Association (HIA), which would indicate that South Australian builders have not had any problems in sourcing building indemnity insurance since the announcement that CGU and Lumley will be departing from the marketplace.

Obviously, I have requested that the department monitor these changes very closely, so we will be monitoring the marketplace in a very careful and ongoing way. At this point in time I have been advised that the marketplace in South Australia is secure and that there should be no adverse short-term effects. As I said, we will continue to monitor the situation and make any changes as might be indicated.

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