Queensland system better, says builder who fled north

"We were originally insured with HIH but when they went down the gurgler it didn't matter that we had a good record; we couldn't get backing from anybody," he says.

"We were resigned to having a builder's licence which only allows you to build things that don't require home warranty insurance. So we spent a while building pergolas, then we left."

Consumer advocates and builders want a Queensland-style system implemented nationwide. In Queensland a one-stop statutory authority, the Building Services Authority, administers consumer insurance as well as builders' licences and dispute resolution.

Insurance is mandatory and is linked to a builder's licence, so a builder risks losing his licence if he refuses to remedy defects when directed to do so by the authority.

In the event of a dispute with a builder, there is a clear process to follow for the consumer, who can lodge a complaint with the authority. It will inspect the disputed site and if it does not comply with Australian standards, the builder will be directed to make repairs. If the builder refuses, there will be a formal demerit on his public record, and the authority provides a builder to fix the defects under insurance.

The NSW Housing Industry Association claimed in its written submission to the ongoing Senate inquiry that Queensland has the most expensive scheme, but the Queensland Building Services Authority's general manager, Ian Jennings, rejects that. He says the scheme is self-funded by licence fees and insurance premiums.

It is a similar system to the one that operated in NSW before the Carr Labor government privatised home-building warranty insurance in 1997.

Mr Greville moved his family and business to Queensland in 2003, where the scheme also covers the builder for no-fault defects. "In NSW they'll give you your builder's licence and then not let you build anything. . Here your BSA insurance is part and parcel of your licence."

In NSW, home warranty insurance is mandatory for all projects worth $12,000 or more but insurers had refused to grant Mr Greville cover unless he provided them with a $50,000 bank guarantee, which he could not do.

"In Queensland I don't need to sign guarantees to insurance companies to work as a builder," he told the Senate inquiry.

With a guarantee, the insurer transfers all its risk to the builder. "It costs the insurer absolutely nothing, unless the builder happens to have died, because they claim it all back from the builder," Mr Greville says. "They can even claim it back from the estate of a dead builder within a certain amount of time."

Another Sydney builder and member of the Master Builders Association, who asked not to be named as he still deals with insurers in his new job, had a 2001 bank guarantee drawn upon this year without his knowledge.

He took out a policy with HIH and gave it a $100,000 bank guarantee just weeks before it collapsed in March 2001. His policy worthless, the liquidators kept his bank guarantee, which cost him a further $5000 a year to service. To keep his business going, he had to find another insurer, and provide a second $100,000 bank guarantee - but then the second insurer dropped out of the home warranty market.

"What sticks in my craw even more is the premiums Vero and others have collected. The State Government effectively gave that business away and … with home warranty insurance they've paid out some measly amount of their premium grab and in the process destroyed stacks of builders."