Recent audits by the NSW Government are a worry for the building industry. Nearly half of the building and renovation companies audited were found to be operating without the required insurance coverage. We’re talking about home warranty insurance.
This crackdown is part of the government’s broader effort to ensure the safety and compliance of the construction sector. The NSW government also announced in August its review of the Home Building Compensation Fund. Set up a decade ago, the fund offers homeowners a safety net if their builder disappears, dies, becomes insolvent, or loses their licence for not paying compensation as officially ordered. It is a safety net for residential worth more than $20,000 that licensed builders and contractors have carried out.
Why do builders miss the boat?
Possible reasons why builders haven’t taken out this compulsory insurance include:
Lack of awareness about their legal obligations
Cost concerns
Misconception about the requirements, with some builders thinking they don’t need this cover for certain types of projects
Intentional non-compliance, and
Confusion about due to several regulatory changes over the years.
Legal and Financial Consequences for Builders
The consequences of non-compliance can be severe. Builders operating without proper insurance can face significant fines, lose their licence, and even face legal prosecution. This type of legal and regulatory trouble can topple a business.
More importantly, without insurance, these builders are personally liable for any damages or project failures. This leaves them vulnerable to financial ruin if things go wrong on their sites.
Impact on Business Reputation and Client Trust
Beyond legal and financial issues, builders caught without insurance face disastrous reputational damage. The building industry thrives on trust, but once lost, it’s tough to regain. Clients will shy away from a company that cuts corners or fails to comply with key regulations.
As well, regulatory bodies could blacklist builders who are non-compliant. That makes it even harder to secure future work. Hence, a short-term penalty is just the start of a non-compliant operator’s woes.
The Importance of Maintaining Proper Insurance Coverage
Securing adequate insurance coverage is a regulatory box to tick that’s also an essential aspect of running a successful building business. Being fully insured can:
- Protect you from unexpected legal action
- Help ensures financial security, and
- Enhances your credibility in the industry.
By having the required insurance, builders are demonstrating to clients that they’re serious about their work and responsibilities. It also offers peace of mind to all parties so, if anything goes wrong, there is a safety net in place.
Key insurances for builders
iCARE is currently the only insurance provider for the compulsory home building compensation insurance (which covers structural defects) under the Home Building Compensation Fund. Although the scheme was designed to potentially allow other insurance providers to offer policies, this has yet to happen.
In addition to the compulsory warranty insurance, builders should also consider two other key insurance requirements:
- Public liability insurance, to protect against third-party injuries or property damage, and
- Workers’ compensation insurance to cover employee injuries.
It’s important to understand policy limits and exclusions so that you’re confident your business has legal and adequate coverage for your specific projects. As your broker or adviser, we can provide clarity about what policy coverage. We can help you identify areas where your coverage can be optimised without compromising protection, too.
Protect Your Business
So, if you’re a builder or renovation company, now’s the time to review your insurance coverage. Make sure that your policies meet all regulatory requirements and protect you from both financial and reputational damage. The consequences of non-compliance are just too high to ignore.