Frequently Asked Questions

About Residential Construction Warranty

Q	Why do builders need Warranty Insurance?
A	It is a legislative requirement for all builders in regards to residential projects.
Q	What does Warranty Insurance cover?
A	To provide consumer protection in the event of a builder being unable to complete or rectify their work by reason of death, disappearance or insolvency.

Assessment Process and Premium Calculation

Q	What is required to access Residential Warranty Insurance, if the builder is currently insured elsewhere?
A	A letter of appointment and full assessment documentation.
Q	What information is required for a builder’s initial assessment?
A	A builder must be licenced in the state in which he operates. He needs to complete and sign the assessment form and provide up to date financials to demonstrate their financial capacity. We also require a statement of assets and liabilities along with various other information required by the insurer.
Q	What are the financial requirements for the turnover the builder is asking for?
A	This is normally a net tangible worth equal or greater than 10% of the annual turnover limit sought by the builder.
Q	What happens if the builder does not have sufficient capital in the business to support turnover requirements?
A	We notify of the builder's capitalisation or bank guarantee requirements and set the assessment pending verification of compliance.
Q	When can the builder expect to be notified of the approval of their assessment?
A	The insurer individually evaluates each assessment. This process will not commence until all documents and information required to support the assessment have been presented. Once a decision has been made the builder will be notified.

Beyond Assessment

Q	What will the Insurer issue after the assessment process is complete?
A	The builder will be provided with a letter of eligibility which will state turnover limits, premium rates and individual contract limits.
Q	How does a builder obtain individual project certificates?
A	The builder is required to provide a completed application form for each individual project. When received, the Insurer will issue the certificates to the builder, the permit authority and the home owner (subject to the builder having current eligibility; Insurer reserves the right to withdraw eligibility or refuse individual project applications).
Q	Why do premium vary for builders on similar projects?
A	Builders are categorised individually based on their financial capacity and net tangible worth. The higher the category the higher the perceived risk and subsequent premium.
Q	How can builders reduce their premiums?
A	Builders can reduce their premiums by achieving a lower category rating. A rating is a product of net worth, financial performance, stability, experience and turnover. As these variables improve with the builder’s improved performance, the category rating will decrease. Therefore, the lower the rating the lower the premium.
Q	How does the builder acquire the lowest category rating of one?
A	The category rating system is based on the assessed financial risk of a builder and is affected by such factors as: level of equity, gross profit margin, debtor days, creditor days, turnover growth, changes to work in progress, builder size and areas of construction, length of time in business, adverse information, frequency of financial reporting and job costing system. Improvement in each of these factors over time will produce an improved category rating.
Q	What is an annual limit?
A	An annual limit relates to the dollar amount of construction exposure given the experience and net worth of a builder. If a builder wishes to increase these limits a profile reassessment will be required.
Q	How often is a builder required to be assessed?
A	All builders require reassessment once a year, however, in the some instances reassessment may be triggered at more frequent intervals. These include; excessive turnover growth, dishonoured cheques, adverse information, performing work outside their profile. Builders showing signs of distress will more than likely require assessment six monthly depending on their position.

Legislation Changes and Requirements

Q	What impact will the recent legislative changes have on warranty insurance?
A	Residential warranty insurance has undertaken a significant journey during the past few months. Insurers have been working with governments and industry groups to protect the long term viability of the building sector.
Q	How does the builder get their building licence if they don’t have insurance ?
A	Once a builder is eligible for Residential Construction Warranty Insurance, they will be provided with a certificate they can use to obtain a building licence.
Q	Why can’t a builder apply for eligibility in their own name, when they only use a company entity for taxation purposes?
A	Only a builder eligible for warranty insurance cover can enter into a residential building contact with an owner. Therefore it is important to apply for Residential Construction Warranty insurance eligibility in the name of the party the builder has contracted with.
Q	Why does a builder need a company licence, when they are licenced as a sole trader/partner?
A	The insured is entitled to a contract in the name of the entity with which they are dealing.

Financial Controls

Q	A condition of the builder’s approval was a bank guarantee. When can they get their Bank guarantee released?
A	The underwriter may seek a bank guarantee to support the builder’s application based on the perceived risk. The warranty provided by a builder to an owner is for a prescribed period (refer individual state legislation) following completion. Providing there are no claims, the bank guarantee will be released at the completion of this period.
Q	Does the builder require any deeds of indemnity?
A	General deeds of indemnity are no longer required. However, builders will still need to demonstrate that they have the financial capacity and experience to complete building works or rectify defects if required. Job specific deeds of indemnity will be required for developer projects and any projects for a family member or related entity.

Myths and Facts

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