There’s a statement about a proposal to invite insurance firms to provide building warranties for new apartment blocks – but only those constructed by the best builders – which may sound familiar to you.
“Bad builders will be able to be excluded,” it goes. “They will not get insurance and therefore will not get work in the residential building industry. Good builders will be rewarded with lower premiums.”
Who said that? Was it NSW Building Commissioner David Chandler, hoping to entice insurers back into the building warranties game by driving out the dodgy developers?
How about Better Regulation minister Kevin Anderson ushering in the committee set up last week by the NSW government to explore the insurance industry’s potential for providing construction warranties for high-rise apartment buildings?
Or was it Gary Dransfield, the past president of the Insurance Council of Australia, who’s just been named chair of that very ministerial advisory panel that’s been tasked with putting flesh on the bones of the new system?
In fact it was uttered back in 1995 by then recently appointed Fair Trading Minister Faye Lo Po, announcing a bright new dawn for home building warranty insurance, following the alleged failures of the state’s Building Services Corporation.
Because of complaints about, among other issues, conflict of interest – the BSC was deciding on insurance claims that it would have to pay – it was being broken up with the insurance arm handed over to the private sector and the rest absorbed into the shiny new Fair Trading department.
Sadly, if apartment owners thought the BSC was bad news, the headlines were about to get a lot worse. Just three years later in 1998 we saw the introduction of private certification.
That misconceived move allowed developers to choose their own certifiers rather than have to deal with the pen-pushers and paper-shufflers of local councils, who were just holding things up with their nit-picking inspections.
The consequences were as awful as they were predictable. A few years after that, just when the effects of that misstep start to show up in cracked concrete and failed waterproofing, we hit the global financial crisis.
That led to the collapse of principal insurer HIH, while the other main players backed away from insuring increasingly unreliable building work.
The governments of NSW and Victoria stepped in with a half-baked non-solution that offered high-rise apartment owners cover only in the event of the developer going bankrupt, dying or disappearing, and even then for only six years.
Otherwise, they were expected to take on multinational corporations at their own expense and peril, while private self-certification continued unabated in an era of cheap and cheerless buildings thrown up against a backdrop of incompetence, confusion and corruption.
That’s what led eventually to the crisis in apartment construction in NSW, which led in turn to the appointment of NSW Building Commissioner Chandler.
Mr Chandler now wants to entice private insurers back to the apartment building game, where there are consumers to service and profits to be made. But they‘ll need assurance that they won’t have to indemnify the builders of sub-standard properties.
The next step was the steering committee announced last week which contains the great and the good from insurance, property development, apartment management and owners.
If the committee exploring the options for the Decennial Liability Insurance (DLI) – they mean 10-year building warranties – get it right, they will not only drive the worst 20 per cent of developers out of business, but set a precedent for state governments all over Australia that have hitherto left the owners in structurally defective blocks to fend for themselves.
NSW has led the world in developing strata schemes … and the rest of Australia down a long road of poor consumer care and consequent lack of confidence. Perhaps this proposal will lead the nation in the other direction.
“Establishing a market for DLI will mean untrustworthy developers are weeded out, creating a stronger, more competitive market where consumers can purchase with confidence,” said Kevin Anderson.
One task will be to decide whether the 10-year building warranty will be compulsory or merely obligatory for any developer who doesn’t want to stand out from the crowd as being uninsurable.
Having shored up the credibility of the building industry by identifying and dealing with the worst offenders, the government hopes insurers will come back to a market they abandoned nearly 20 years ago
“Private sector insurers will be able to manage the risks far better than a government scheme,” Faye Lo Po’s words echo all the way from last century, as does that famous quote from just over 100 years ago by philosopher George Santayana: “Those who cannot remember the past are condemned to repeat it.”
A version of this column first appeared in the Australian Financial Review.
