Builders were slammed with a 43% increase in insurance premiums to safeguard their clients from insolvency, adding hundreds of dollars to construction expenses that the housing sector anticipates will be passed on, meaning Victorians building houses will be hit with even higher costs.
Domestic building insurance (DBI) premiums will rise starting on 1 September due to a crisis in residential development, the Victorian Managed Insurance Authority announced on Monday.
The price increase would add around $550 to the average premium of $1200 to $1300 while businesses are already coping with labour and supply difficulties. The cost of premiums will remain lower than in NSW.
Before accepting a client’s deposit or any other payment, builders are required to obtain insurance for all residential projects costing more than $16,000. The client is protected by the insurance, which the builder is compelled to pay, in the event that they pass away or are declared bankrupt before the job is finished.
The Age has reported that numerous builders in Victoria delayed securing the protections for their consumers, potentially breaking the law. The collapse of Porter Davis in March exposed flaws in the system.
Before the Andrews government introduced a rescue package to reimburse clients’ deposits in the absence of insurance, Porter Davis, Snowdon, and Hallbury Homes consumers faced losing tens of thousands of dollars.
Companies would not necessarily fail as a result of the decision to raise premiums, according to Keith Ryan, the executive director of Housing Industry Australia for Victoria, but it would have a cumulative effect that ultimately impacted builders and their clients.
“Builders want to stay competitive, but they will have little option but to factor the premium rise into the cost of a new dwelling and pass on to home buyers,” he said.
Ryan said that delaying the decision while the government considered reforming the insurance programme was premature.
Andrew Davies, the chief executive of the Victorian Managed Insurance Authority, issued a warning last month that the number of claims will more than quadruple this year.
On Monday night, a representative said that the premiums took anticipated risks and claims into consideration.
“Recent pressures in the construction industry such as higher building costs and builder insolvencies are influencing the increase in premiums,” she said. “Victorian DBI premiums are a small proportion of overall building costs – for example, for a new single dwelling, DBI will now represent 0.4 per cent of the average building contract value, less than the 0.9 per cent in NSW.”
A new multi-unit residence would have a premium of 1.3% of the average contract value, which is less than the 5.5% in NSW.
Megan Peacock, director of policy at Master Builders Victoria, claimed that the hike would hurt cash flow because contractors must obtain insurance for clients before receiving deposits.
“However, the DBI increases are still much lower than NSW,” Peacock said. “We’ve seen the impacts of insolvencies affecting the insurance industry post-COVID. This will continue to impact them.”
Increasing rates, according to Jess Wilson, the state Coalition’s spokesperson for home ownership, won’t improve the industry.
In the midst of a housing supply crisis, residential builders and Victorians trying to build their own homes are being slugged with an insurance increase to pay for the Andrews Labor government’s failure to act on risks in the sector they were warned about 12 months ago,” Wilson said.
“The financial mismanagement of the [Victorian Managed Insurance Authority] has seen it slide $250 million into deficit and now hardworking Victorians building their own homes will pay the price.”
The authority’s premiums are not determined by the government, according to Premier Daniel Andrews last month.
“Insurance costs are set by the market … Those prices fluctuate, as prices are all about trying to quantify how much risk costs,” he said. “The greatest pressure you can put on a consumer is if you sign a contract and your builder chooses not to take out insurance that you’ve paid for.”
On Monday, a message was sent to the state government, but as of this writing, no response had been received.