Ursula Stephens (NSW, Australian Labor Party, Parliamentary Secretary for Social Inclusion and the Voluntary Sector) Share this | Link to this | Hansard source

I present the government’s response to the report of the Senate Standing Committee on Economics into Australia’s mandatory last resort home warranty insurance scheme. I seek leave to have the document incorporated in Hansard.

Leave granted.

The document read as follows—

GOVERNMENT RESPONSE TO THE SENATE STANDING COMMITTEE ON ECONOMICS REPORT ON AUSTRALIA'S MANDATORY LAST RESORT HOME WARRANTY INSURANCE SCHEME

BACKGROUND

Australia's mandatory last resort home builders' warranty insurance (HBWI) scheme was, with the support of the Government, referred to the Senate Economics Committee on 19 March 2008. The Committee released its final report on 13 November 2008.

Regulatory responsibility for HBWI resides with State and Territory governments, which determine whether, and in what form, to mandate HBWI. The Commonwealth's role in this area is limited to the regulation of insurers under the Insurance Act 1973, corporations regulation, including under the Corporations Act 2001, and generic consumer protection provisions under the Trade Practices Act 1974.

State and Territory governments also have broader regulatory responsibilities for the building industry. Importantly, this means that the form and scope of HBWI can be considered in conjunction with other aspects of the building industry, including licensing requirements and dispute resolution mechanisms. The Government considers it essential that HBWI be considered in this broader context. Evidence to the Committee from the hearings and submissions, from a variety of stakeholders, also indicated a strong view that HBWI should be considered as part of building industry regulation as a whole.

The Committee's report contains four recommendations, the principal recommendation being that COAG and the Ministerial Council on Consumer Affairs (MCCA) should pursue a nationally harmonised 'best practice' scheme of consumer protection in domestic building. The report's other recommendations relate to provision of the insurance certificate to all parties, the name of the insurance, and HBWI data collection and reporting arrangements.

The report also includes a dissenting report by Australian Greens Party members of the Committee which contains four recommendations. The dissenting report's principal recommendation is that Australia adopt a national system based on Queensland's model, the design of which would be overseen by the Australian Government. The other recommendations relate to interim arrangements, HBWI data collection and Australian Government regulatory oversight of HBWI.

The Government's response to each of the recommendations is outlined below.

THE COMMITTEE'S RECOMMENDATIONS

Recommendation 1

The committee recommends that all parties receive a copy of the insurance certificate, summary of product and dispute resolution procedures. The committee recommends changing the name of the insurance.

Recommendation 2

The committee recommends that COAG and the Ministerial Council on Consumer Affairs should pursue a nationally harmonised 'best practice' scheme of consumer protection in domestic building.

The scheme should include but not be limited to:

• disciplinary procedures and penalties;
• clearer definition of defective work;
• quicker and easier dispute resolution;
• the proposed 'loss of licence' insurance trigger:
• the HIA's 'guarantee of completion' and related proposals;
• and better information for consumers (including information on builders' licence record and average cost of premiums).

Recommendation 3

The committee recommends that COAG and the Ministerial Council on Consumer Affairs should pursue a nationally harmonised scheme of detailed reporting of home warranty insurance.

Recommendation 4

The committee recommends that home warranty insurance should be included in the National Claims and Policies Database.

Government response to the Committee's recommendations The Goverment notes these recommendations.

The Government is concerned that HBWI has been a source of frustration for consumers and builders. In response to these concerns, and following the recommendations of this Senate Inquiry, the Government placed the issue of improving consumer protection in regards to home warranty insurance on the MCCA agenda for its May 2009 meeting.

The Government agrees with the Committee's recommendation that MCCA is the most appropriate body to pursue the issue further, noting that it includes representatives of State and Territory governments, which are responsible for regulating HBWI.

MCCA noted the findings of the Senate Inquiry's report and agreed to refer this matter to the Standing Committee of Officials of Consumer Affairs to consider as part of the review of the harmonisation of conduct provisions for the national licensing system. The Council also agreed to place this issue on the MCCA Strategic Agenda.

More broadly, the Government notes that a number of HBWI providers have either departed the market in recent months or signalled their intention to do so. Given that HBWI is mandatory in most States and Territories, it is crucial that the insurance remains readily available.

The Government calls on States and Territories to explore options to harmonise and improve broader consumer protection measures in the building industry through the MCCA process.

THE DISSENTING REPORT RECOMMENDATIONS

Dissenting report recommendation 1

Australia should adopt a national approach to this issue and rapidly move to a system based on the Queensland model of home warranty insurance. The Federal government should oversee the design of the scheme and seek to have it implemented through the COAG process. A timejkame should be adopted such that the new model comes into operation by January 2010.

Dissenting report recommendation 2

Between November 13 2008 and January 2010, last resort home warranty insurance should not be mandatory. If an insurance product provides good cover it will be supported voluntarily.

Government response to dissenting report recommendations 1 and 2

The Government does not support these recommendations.

As noted above, regulatory responsibility for HBWI resides with State and Territory governments, rather than the Australian Government Those governments, through their representation on MCCA, have determined that rather than move rapidly to a national system based on the Queensland model, the matter requires further review. The Goverment will await the outcomes of that review process.

Dissenting report recommendation 3

The Greens agree that any form of home warranty insurance should be included in the National Claims and Policies Database.

Government response to dissenting report recommendation 3

The Government notes this recommendation.

The Government will request that HBWI data collection and reporting arrangements be examined as part of the MCCA review. However, the Government understands that some States are already

collecting data on HBWI, or are proposing to do so. This will need to be taken into consideration in any examination of the matter by the MCCA review.

Dissenting report recommendation 4

If any loopholes remain in Commonwealth regulation or legislation such that home warranty insurance is exempted in any way from oversight by APRA, ACCC and ASIC, then that legislation or regulation must be amended immediately to close the loophole.

Government response to dissenting report recommendation 4

The Government does not consider that there are any 'loopholes' in Commonwealth legislation or regulation such that HBWI is exempted from appropriate oversight by APRA, the ACCC or ASIC.

In the course of the inquiry, the rationale behind, and operation of, Corporations

Regulation 7.1.12(2) was questioned. The regulation excludes state-mandated HBWI from the definition of a home building insurance product for the purposes of the Corporations Act 2001, which has the effect of making it a wholesale rather than retail product.

Consistent with the Australian Treasury's evidence to the inquiry, the Committee found that the regulation does not remove the product from all Australian Government regulatory oversight and has no connection with APRA's information-gathering powers or with the National Claims and Policies Database.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

by leave—I move:

That the Senate take note of the document.

I am fascinated that the government has at last gotten around to responding to the Senate Standing Committee on Economics report on Australia’s mandatory last resort home warranty insurance scheme. This report was tabled in the Senate on 13 November 2008, and I am delighted that finally, in June 2010, we have the government’s response. I ask myself, ‘Why is it that the government, having not bothered with this for all time, should suddenly decide that it is going to respond to the report right now?’ The answer simply is that it is a back-covering exercise. The reason is that this committee report, as indicated in my dissenting remarks, was an extremely weak report in the first place. I was very disappointed about it and made a number of dissenting remarks. The reason I am saying it is now a back-covering exercise is that everything that was alleged about this insurance product has come to pass between the tabling of the report and now. As the government itself notes, a number of home builders warranty insurance providers have either departed the market in recent months or signalled their intention to do so, given that the insurance is mandatory in most states and territories and the government says it is crucial that the insurance remains readily available. That is because they have left the marketplace and, come 1 July, we are going to have a crisis in the building industry across Australia.

Since that time there have been changes in New South Wales and there is yet another inquiry in Victoria. What is the Commonwealth’s response? Extraordinary! The response is: ‘The government calls on states and territories to explore options to harmonise and improve broader consumer protection measures in the building industry through the Ministerial Council on Consumer Affairs process.’ We are exploring options through ministerial process to a crisis that is going to take place on 1 July because builders are going to be left without this mandatory insurance. They will either have to build illegally, without the insurance, or not build, because from 1 July it is going to be very difficult for many builders to get this insurance product. They already owe under other schemes. They are already held under those other schemes and they cannot transfer easily to any that might suddenly be available.

What is the building industry supposed to do? Is it a solution to tell them that we are about to have a crisis and that the states and territories should explore options to harmonise and improve broader consumer protection measures in the building industry through the Ministerial Council on Consumer Affairs process? Too bad; too slow. This is not going to cover the back of the Commonwealth. There was an opportunity to deal with this issue two years ago. At the time, I said what should happen is that the Commonwealth should step in, stop it being a mandatory product and go with the system that is in Queensland, which works incredibly well, where the government sorts out this process and provides the kind of security that both the consumer and the builder need. But no, the government refused to do that.

After the Senate inquiry process it was demonstrated through an ombudsman’s report that information that was available on the public record was withheld from the Senate committee. I did not take too kindly to that. Nor do I take too kindly to the fact that the Housing Industry Association seems to have such incredible power over a number of state governments and, it would seem, in relation to the Senate inquiry. I am extremely unhappy with this vague response. The government thinks it is enough to say on the record now: ‘Oh dear, at the end of the month—this is terrible—a number of providers will have left the industry. It is crucial that the insurance remains available.’ No. It is crucial that the product ceases to be mandatory. If it is such a good product people will take it up voluntarily. It should not be mandatory. If we want to avoid a crisis in the building industry come 1 July, we should be moving here to say that every state must remove the mandatory nature of this insurance as it currently stands in order that the onus is not left on builders. I am extremely unhappy about the government’s response.

As to the other responses the government has made to my recommendations, I pointed out here that there was a deal done at one point during the Howard years where the builders warranty product was made a wholesale product rather than a retail product and then it escaped the scrutiny of some of those organisations that have oversight over financial products. The government said: ‘No, that is not a problem. Consistent with the Treasury’s evidence, the committee found that the regulation does not remove the product from all Australian government regulatory oversight.’ But it does remove it from some. My point here is that it ought not to be removed. There has never been an adequate explanation to the Senate or anywhere else as to why the government of the day and the minister of the day decided to make this product a wholesale rather than a retail product. At some point in the future, we will get an answer to that. But we do not have it now. I still maintain that we do not have the proper oversight and we do not have the information-gathering powers that we need.

As I argued at the time, we should have any form of home warranty insurance included in the national claims and policies database. The government noted the recommendations but said that some states are already collecting data on home building warranty insurance or are proposing to do so and that will need to be taken into consideration in the ministerial council’s review. That is not good enough. Why shouldn’t the data have to be collected and included in that national claims and policies database? There is no satisfactory explanation for why that is not the case.

This whole thing has been a really questionable process. It is a questionable product. Inquiry after inquiry has demonstrated that it is junk insurance. Tasmania had the courage to abolish it, and the sky has not fallen in in Tasmania since its abolition. Queensland has a good system. Other states go through inquiry after inquiry and we have now ended up in a situation in which the builders of Australia—particularly those in Victoria and New South Wales—are in a very vulnerable position.

If we have the crisis in the building industry that I anticipate come 1 July, I put the government on notice now that just putting in a response to the Senate committee’s report some 18 months after the committee reported saying, ‘Oh, dear: the product seems to have been removed. It’s crucial that the product remains available. Options should be explored and that should happen through a ministerial council process,’ is not good enough. This is going to swing right back to the government in this winter break. I urge the government right now to get serious about this and move immediately to remove the mandatory nature of this product to stop the crisis in the industry that is about to ensue.

Question agreed to.