BuiltIn Insurance loses underwriter for its building warranty, but finds replacement
Monday, 27 January 2020
A third building warranty has been hampered by its insurer pulling out of the global market.
However, the provider of the warranty, BuiltIn Insurance, says it has found another backer and is also extending coverage to other builders who have lost theirs.
BuiltIn holds about 2000 warranties, and its customers include the 250-strong Combined Building Supplies Co-operative.
A builders warranty protects new home owners in case their building firm collapses during construction and the 10 year period afterwards when builders must fix defects on a new home or major alteration.
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BuiltIn follows Certified Builders and Stamford Insurance who all had warranties backed by the underwriter, a subsidiary of Lloyds of London.
Certified Builders, which loses its coverage this week, has not been able to find an insurer so far.
Stamford, which lost its warranty on December 31, says it is close to announcing a replacement backer.
Both organisations stressed that existing policies would be honoured.
BuiltIn Insurance's marketing manager Ben Rickard said his company has found a replacement backer with United States-based construction bond specialist Southern Pacific Insurance Corporation (Sopac).
He said Sopac saw significant growth potential in the New Zealand chronic shortage of housing stock.
The fresh difficulties finding insurance have amplified calls for the Government to make building warranties compulsory.
After CBL Insurance's liquidation last year, the only providers consumers have are BuiltIn, several group builders and the Registered Master Builder guarantee, which is provided by one of its subsidiaries.
Master Builder chief executive David Kelly said his organisation supported a mandatory warranty but felt consumers should still have options.
'Our position is that if you're building a new home or a substantial renovation, you should get a guarantee. We think that's just common sense.'
But 'what's the guarantee going to cover? If you try to make it cover too much, the cost goes up'.
Other factors to consider included the strength of the backer.
'I think the critical thing is to look at who's providing the guarantees, are they substantial, are they solid? In our case, we voluntarily, through our guarantee, measure ourselves against Reserve Bank requirements.'
Certified Builders spokesman Jason McClintock also supported the mandatory warranty idea, saying the current situation left a big hole in the market.
'We do need to fill this hole to better protect New Zealand consumers.'
The Ministry of Building, Innovation and Employment (MBIE) says the mandatory warranty idea is 'still under active consideration' and a decision was due later this year.
However, after ministry consulted the industry last year, there were concerns that New Zealand might struggle to find an insurer big enough to take on demand.
Rickard doubted New Zealand's leaky buildings legacy were a detraction, but he said the number of underwriters in the construction sector was shrinking.
'The fact we've managed to find a small niche player, they don't have unlimited capacity. If the market tripled, they would have to get more capital, there would be some fairly deep digging to find the capacity.
'That's the main issue, there's not enough players out there, so it really does indicate that mandatory might be hard to meet at this stage.'
Rickard said it was not clear why insurers were reluctant to insure the construction sector, but he had heard of concerns about exposure to flammable cladding after London's Grenfell Tower fire.
'There's just a lack of enthusiasm to do this kind of thing in construction around the world and I think if there was a player who was keen, New Zealand would be as attractive as anywhere else.'