Compulsory home warranty in New Zealand is not the solution

15 April 2011

Peter Harris, CEO of Contractors Bonding Limited (CBL), says that compulsory builders warranties are not the solution to New Zealand's house building market, further supporting the Government's decision to remove the mandate from its proposed legislation.

“Making builders warranties compulsory turns this important area into a 'tick box' process, and shifts the entire responsibility to the insurance underwriters.

“There are already existing solutions for homeowners that want to protect themselves through the building process. Responsible owners and their lenders already choose to take out a HomeFirst Certified Builders guarantee, or use a Master Builder who are backed by a fund, albeit an uninsured one,” says Mr Harris.

“The issues associated with leaky homes over the last 10-15 years have created a lot of distress and financial discomfort for impacted homeowners. This situation has increased awareness of the need for products such as home warranties, but making these products compulsory is not the answer.

“These products have been available in New Zealand for a number of years. Homeowners have had the choice of getting their building work underwritten, in the same way that they can chose to take out insurance to protect their cars, or the contents of their homes.

“As these products exist, if homeowners have chosen not to take out insurance when building, then they have effectively made the decision to take on the risk of the build not being completed or certain standards not being met.”

But according to CBL, the suggestion that home warranties should be compulsory is not the answer. By mandating home warranties, there is an increased element of risk.

“It will encourage insurers to enter the market based on the potential premium income, without really understanding or underwriting the real risk.

“This then has the potential to create a situation where as claims come in, some less experienced insurers will pull out, leaving those insurers that have understood the risk when developing their policies, or the Government, to rescue the industry, as has been the case in both New South Wales and Victoria,” says Mr Harris.

“As long as there are insurance solutions available in New Zealand, which there currently are, then homeowners should be free to decide whether they take out protection or not and the Government is right to have excluded a mandate from the legislation under review."

CBL has more than 350,000 homeowners insured against building completion risk in New Zealand, Australia, Mexico and France. CBL is currently paying claims arising out of the recent Sovereign Homes collapse, enabling those homeowners impacted by the situation to recover their money.

ENDS

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