The jury is out over whether the Government’s proposal to change who is liable for defective building will leave homeowners in the lurch.
The Government is proposing to prevent local councils from being lumped with big bills if they consent buildings that turn out to be leaky or flawed.
It wants to ensure those responsible pay their share to fix the problem.
For decades, all parties involved in a build have been jointly liable. If one party can’t pay their share, whoever is still standing – often the local council – must pay.
While the proposal to shift from “joint and several” to “proportionate” liability arguably provides for a fairer solution, the difficulty is that builders won’t always be able to stump up with the cash if they’re culpable for an error – particularly if it’s widespread.
Ideally, they need to be insured or be able to offer homeowners a guarantee.
Building and Construction Minister Chris Penk is considering whether to make such consumer protections mandatory.
However, there are mixed views over whether this is doable.
Stamford Insurance director Duncan Colebrook said the insurance industry didn’t have the appetite to provide blanket cover. Indeed, Stamford was selective about who it provided cover for.
“We go through a careful underwriting process in that we do a technical assessment on any builder who wants to offer our policies,” Colebrook said.
“Even if it’s just a small firm with a couple of guys on the tools and subcontractors, we still do a technical assessment on them to get a picture of their experience, qualifications, history, procedures, practices, quality assurance, processes and so on. We do our best to make sure that we deal with the better side of the industry.
“We won’t change our underwriting process to accommodate this sort of laissez-faire attitude of the Government to try to deregulate the industry to some extent.”
Colebrook said if the Government wanted to guarantee consumer protections were in place, it would need to provide these itself.
However, taking on risk (indirectly via local councils) was the thing it was trying to avoid by proposing to change the rules.
It is for this reason that Colebrook opposed Penk’s proposal to change the liability regime.
He said the Government was “going down a very dark road” from a homeowner’s perspective.
Certified Builders chief executive Malcolm Fleming had a different view.
He believed the 10-year guarantees, available to homeowners who use builders who meet prerequisites to become members of industry organisations, could be used more broadly.
Fleming said that about 42% of the builds completed by Certified Builders’ members were currently backed by a guarantee.
He said homeowners often opted to save money by not getting a guarantee.
However, Certified Builders had capacity to issue more guarantees.
Certified and Master Builders’ guarantees are capped and paid for by the industry associations.
They are not backed by an insurer that needs to meet solvency standards, as the Stamford product is. Stamford issues policies on behalf of Lloyd’s of London, which is regulated by the Reserve Bank.
The cover provided by the various products differs.
Fleming said that about two-thirds of builders were members of either Certified or Master Builders. He believed about half of those who weren’t would meet the requirements if they tried. The other half could contract to a builder who was certified.
He believed it was essential for the Government to make having some sort of consumer protection mandatory, if it changed the liability regime.
The country’s dominant Australian-owned general insurers, IAG and Suncorp, don’t offer specialised building insurance cover.
The industry group they are part of, the Insurance Council of New Zealand, said it discussed the “challenges” it saw with the proposed Building Act changes with the Government.
Builtin insurance brokers director Ben Rickard was unconvinced the proposed changes would make building cheaper, noting the high level of risk insurers faced getting into the building space.
“Most insurers insure something for a year and then they can reassess it the following year,” he said.
“With this, you’re committing to it for 10 years. I think New Zealand insurers, probably maybe more than others, are wary post leaky homes of what the products are that they’re being asked to guarantee.
“It’s not necessarily workmanship. It’s, ‘For the last 10 years, this wiring’s been used, or these plumbing fittings have been used, or this cladding’s been used, and all of a sudden, we’re finding out that it’s failed, and we’ve got 100,000 houses with our guarantee on with all these failed products in it’.
“And that’s a massive risk that any insurer takes on.”
Rickard questioned why Penk would announce a major policy change without being in a position to iron out exactly how it would work.
However, Penk said: “I’m very certain that we will have some measure of appropriate level of consumer protection.
“Exactly what that looks like, and exactly which specific insurers are prepared to come to the party, is not something I can answer on their behalf.”
Australia has a proportionate liability regime, which New Zealand officials are looking at.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.