Typically, New Zealand builders offer a 10-year warranty for problems and defects in a house, and that warranty is covered by insurance if they go bust or close down.
But homeowners covered by policies underwritten by CBL Insurance face having nowhere to go for recompense, after McGrathNicol this week said it would not be paying out for claims and advised policy-holders to seek advice on getting cover elsewhere.
Jim Rickard, a director of Builtin and CBA Insurances, which sold the policies underwritten by CBL Insurance, said it had made arrangements for builder's liability policies to be transferred to another insurer.
But the situation around the 10-year warranties was still unresolved.
"We are in discussions regarding the 10-year warranties to try and resolve it."
Rickard said whether another insurer could take on the warranties was being looked into. "We are trying to ascertain what is feasible and possible and to whom."
Rickard said more than 10,000 new homes in New Zealand were covered by this type of policy, although they ranged in age, with some policies having just six months to run.
Asked what people who had built a house with those warranties should do, Rickard urged them to hold tight.
"Effectively it is watch this space. We are working desperately hard to get a resolution."
The policies were also sold via the New Zealand Certified Builders Association (NZCBA) until 2016, when the body switched to a product sold by global insurer Lloyds of London.
NZCBA chief executive Grant Florence said he didn't know how many policies it had sold, but estimated it was less than 25 per cent of the volume it did now, which was around 3000 policies a year — so about 750 homes a year.
He played down the likelihood of claims made against those warranties.
It had been about two-and-a-half years since it sold one of those policies via its members, and "the claims are normally in the first couple of years".
Florence said NZCBA regretted the uncertainty for some customers of its member builders who had the Homefirst building guarantees underwritten by CBL Insurance.
Florence said it had started to look at other options to replace that cover.
"But I guess that will take a little time. Really, we have to wait and see what happens with CBL.
"We are waiting to see what the liquidators come up with."
Florence said NZCBA had had discussions with European insurers about replacing the cover and ideally it would like to have Lloyds step in, but it was too early to say if that would happen. It was also considering who would pay for any replacement insurance. "That is some of the stuff we are looking at now. Logically, any insurer would want someone to pay.
"It's part of the negotiations going on now."
But he said it was likely to be weeks before NZCBA got a clearer picture.
Florence urged affected homeowners to get in touch with the liquidator first, then Builtin, which supplied it with the policies, and lastly the association.
"It's not a great situation. I'm frustrated. It's not a great situation for anybody."
John Gray, chief executive of the Home Owners and Buyers Association (HOBANZ) believes it should be up to the providers — Builtin and the NZCBA — to come up with a solution to the problem.
"They need to fill this gap."
He said that under the Building Act, consumers would still be covered for up to 10 years for any faults or problems with their home, but that relied on the builder still being around to sort out the problem.
Gray said finding a replacement insurer for CBL Insurance was a very complex scenario and required looking for another underwriter who would take on retrospective cover.
He said any company considering taking on the guarantee faced considerable risk.
"There is a whole lot of risk there — the claims history on each builder would have to be examined."
That meant any premiums would likely be higher to cover the risk and could be expensive.
And then there was the issue of who would pay for that replacement cover.
"Certainly, consumers shouldn't expect to pay," said Gray. He said consumers had to rely on the organisations which sold the insurance to do the due diligence on the insurance underwriter.
Smaller insurers like CBL Insurance were likely to be riskier because they didn't have the ability to stand up to global shocks, he said.
Gray predicted that thousands of homeowners would be left with warranties that were "worthless".
"That is a huge dent in the market."
There are not many players in the building warranty market in New Zealand. The Master Builders Association runs its own warranty while NZCBA now uses global insurer Lloyds.
Gray urged anyone who had built a home in the past 10 years to check their warranty and get in touch with the provider if the insurance was underwritten by CBL.
He expected some people to be relaxed about it if they did not have any problems with their house, but warned that there could still be problems as the house aged.
Gray said the primary reason such warranties existed was to protect people if the builder went under or moved to another country and closed their local business.
