Building a new home can be a nerve-racking experience. The South Australian government has made changes to give buyers greater peace of mind.
Following a review of South Australia’s building indemnity insurance requirements, the state government has increased the maximum insurance payout that a consumer can claim if their build is not able to be completed by $100,000.
The maximum payout will now sit at $250,000, up from $150,000, if a builder fails to deliver their work due to insolvency, disappearance or death.
South Australia has made changes to its building indemnity insurance in an effort to give buyers greater protection. Image: Getty
This insurance is taken out by a builder to cover their clients in the event that contracted work cannot be completed. In South Australia, every residential project that requires development approval and has a value of over $12,000 must be covered by building indemnity insurance.
The South Australian Government Financing Authority, through its insurance division, currently underwrites the vast majority of building indemnity insurance policies in the state, which are facilitated through QBE Insurance.
Under the reforms, from October 1, the policy limit for all QBE policies will lift from $150,000 to $250,000 – which represents an increase of 66%.
For builders who must purchase the insurance, the premium will rise by 0.1% of the value of the build.
For example, the average premium for a new build or renovation valued between $500,000 to $750,000 will increase from $2,251 to $2,814, a difference of $563.
The South Australian government stepped in to underwrite building indemnity insurance in 2013 in the absence of the availability of this cover in the private sector. Since 2023, at least one other insurer has come to the market to offer building indemnity insurance in South Australia.
The state government will be implementing reforms to make it mandatory for all insurers to provide the increased level of cover.
The South Australian government has been underwriting the vast majority of building indemnity insurance issued in the state since 2013. Image: Getty
Higher input costs and other financial pressures have contributed to rising insolvencies among builders in recent years, particularly since the onset of the COVID-19 pandemic, which kicked off supply chain issues that drastically inflated building costs.
Prices have since moderated, albeit at a very high level, continuing to exert pressure on residential builders.
The South Australian government said that in the 2023-24 financial year, it provided a record $18.7 million dollars through insurance payouts to assist consumers to complete their builds and renovations after the builder was unable to do so.
The government reported that there are currently over 100 claims processing due to recent builder insolvencies in the state.
Andrea Michaels, South Australia’s minister for consumer affairs, said that the government felt an update to the scheme was necessary to protect consumers.
“Buying a home is the biggest investment most people will make in their lives and it is so important that people have sufficient building indemnity insurance in place when building.”
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