Mr DAVID SHOEBRIDGE ( 15:28 ): The Greens do not oppose the Home Building Amendment (Compensation Reform) Bill 2017 but we have significant concerns about it. The bill seeks to do a number of things. First of all, it proposes to have a new legislative framework which allows for private engagement in the home building warranty and insurance sector. It also gives home building insurance providers the option to offer the required protection under one or two policies with what is called a split cover. One part will cover the risk of non-completion and associated defects, which is the construction period insurance, and the other part will cover the risk of breach of statutory warranty after completion, which is the warranty period insurance.
Under the bill the State Insurance Regulatory Authority [SIRA] is the regulator and can allow products that are not insurance products to be registered to meet the obligations under the Act. The greatest concern The Greens have about the bill is the proposal to offer this form of split cover. In particular we note that where these kinds of opportunities have been offered before in the insurance sector under other statutory schemes, the effect has been to privatise the profits and socialise the losses. In this way, I suppose one could say that conservative governments have often proved to be extremely consistent, but very inefficient socialists.
The Hon. Dr Peter Phelps: Hear, hear!
Mr DAVID SHOEBRIDGE: I note the cheer from the former Government whip about privatising the profits and socialising the losses; that is the flavour of this Government and it is the clear intent of this bill. In relation to split cover, the bulk of construction period insurance, which is normally a short term insurance, often for maybe six months or 12 months—some construction projects may go for longer—operates over six to 12 months. That is a form of insurance that the industry likes to offer because it does not have to hold any capital in reserve. Companies can write the policies and churn them through on a 12-month basis, skimming off the profit for that form of insurance. It is only standard building insurance. It is an area of insurance from which the insurance industry has generally made significant profits, and all strength to them; modest profits are needed for that kind of home building insurance, but it is the profitable part of the insurance scheme for home building warranty.
Long-term insurance, the three- and six-year statutory warranty to cover building defects over that period, is the area that insurance companies have previously not wanted to cover and that is because they have to keep a substantial amount of capital set aside to meet those long-term claims, the three- and six-year claims, because the defect may not become apparent until six years after the policy is written. Sometimes it can be even longer, and insurance companies do not like having to set aside capital to meet those long-term claims Often they are very poor at predicting what the cost of those long-term claims will be.
Not only does the bill split the two policies between the construction period insurance and the warranty period insurance, but it allows private insurers to enter into the market for the first time in the life of this scheme and it still requires the NSW Self Insurance Corporation to be the insurer of last resort. If a builder or a home owner is seeking insurance and cannot find it in the private sector—and that will be almost always the statutory warranty insurance—then the NSW Self Insurance Corporation will have to write the policy, and that is the area that is most likely going to involve significant ongoing losses.
Yes, the current scheme is a mess. It is a mess because this Government is not willing to require developers to properly set aside funds for adequate insurance and it allows all the insurance burden to fall upon home owners and home builders. Yes, the current system is a mess and I think it is running at a deficit of approximately $1.7 million a week because, again, the property industry is let off. Who ends up covering the cost of building defects? It is ordinary home owners and, in other cases, the State Government. Meanwhile, the property industry is making billions and billions of dollars in profit.
There is a false idea that there are only two places people can go to get the money to insure and fix up defects. This is what the property industry and this Government always say. The two places to go to get the money to fix up the defects and to properly insure the scheme are either long-suffering home owners, who are already paying through the nose for property in this State, or the State Government. But again, who misses out, who manages to get a free ride and not pay for the cost of the damage? It is the property industry. We know who writes these laws. We know who puts forward these proposals. This is yet another proposal from the Property Council of Australia that is being legislated by its friends in the Coalition Government.