FAQ's

About Residential Construction Warranty Insurance
What does Warranty Insurance cover?
Why do builders need Warranty Insurance?

Assessment process
What if the builder is currently insured elsewhere?
What information is needed to assess a builder?
What financial requirements apply for the turnover requested?
What happens if the builder lacks business capital to support turnover requirements?
How is the approval decision communicated?

Following eligibility
What documentation accompanies eligibility?
How does a builder obtain individual project certificates?
Why builders on similar projects pay different premiums?
Can builders reduce their premiums?
How does the builder become a category one?
What is an annual limit?
How often is a builder reassessed?

Legislation changes and requirements
What recent legislative changes impact warranty insurance?
How does a builder get a building licence without insurance?
Can a builder apply for personal eligibility if they use a company for tax purposes?
Why does a builder need a company licence when they are licensed as a sole trader/partner?

Financial controls
If a bank guarantee is required for the builder's eligibility, when will it be released?
Does the builder require deeds of indemnity?

Myths and Facts
The builder is the beneficiary of Home Warranty Insurance.
Builders can’t easily obtain Warranty Insurance.
Insurers take little risk for the premiums they collect.
Home Warranty Insurance has stalled the building industry.

About Residential Construction Warranty Insurance

What does Warranty Insurance cover?
It provides consumer protection in the event of a builder being unable to complete or rectify their work by reason of death, disappearance or insolvency.

Why do builders need Warranty Insurance?
It is a legislative requirement for all builders in regard to residential projects.

Assessment process

What if the builder is currently insured elsewhere?
Letter of appointment and full assessment documentation is required to access Vero Residential Construction Warranty Insurance. (See application requirements for Applications other than owner builders and new entrants for more information)

What information is needed to assess a builder?
A builder must be licensed in the state in which they operate. They need 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 as detailed by your broker.

What financial requirements apply for the turnover requested?
Normally a net tangible worth of at least 10% of the annual turnover limit sought is needed.

What happens if the builder lacks business capital to support turnover requirements?
We notify the broker in writing of the builder’s capitalisation or bank guarantee requirements. We then set the assessment pending verification of compliance.

How is the approval decision communicated?
We individually evaluate each assessment once all required documents are received. We will then contact your broker with the decision that we have made.

Following eligibility

What documentation accompanies eligibility?
The builder will be provided with a certificate of eligibility via their insurance broker that will state turnover limits, premium rates and individual contract limits.

How does a builder obtain individual project certificates?
An application form must be completed and submitted for each individual project being undertaken by the builder. When received, Vero will issue the certificates of insurance via the broker to the builder, government authority and the home owner (subject to the builder having current eligibility, Vero reserves the right to withdraw eligibility or refuse individual project applications).

Why do builders on similar projects pay different premiums?
Builders are rated in categories according to their financial capacity and net tangible worth. The higher the category, the higher the perceived risk, and the higher the premium.

Can builders reduce their premiums?
Builders can reduce their premiums by lowering their category rating, which reflects net worth, financial performance, stability, experience and turnover. The lower the rating, the lower the premium. The category rating decreases as the builder's performance improves.

How does the builder become a category one?
The category rating system is based on 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 during time will produce an improved category rating.

What is an annual limit?
This is the dollar amount of construction exposure, based on the experience and net worth of a builder. A profile reassessment is needed to increase the annual limit.

How often is a builder reassessed?
All builders will require reassessment once a year. However in the following 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 probably require assessment six monthly depending on their position.

Legislation changes and requirements

Will recent legislative changes impact warranty insurance?
Warranty insurance has undergone major change during the past few months. Insurers have been working with government and industry groups to protect the long-term viability of the building sector.

How does a builder get a building licence without insurance?
Once you are eligible for Residential Construction Warranty Insurance, you will be provided with a letter of eligibility that you can use to obtain your license.

Can a builder apply for personal eligibility if they use a company for tax purposes?
Only a builder eligible for warranty insurance cover can enter into a residential building contract with an owner. Therefore it is important to apply for eligibility in the name of the party that will enter contracts with owners.

Why does a builder need a company licence when they are licensed as a sole trader/partner?
The insured is entitled to a contract in the name of the entity they are dealing with - in this case, the builder's company.

Financial controls

If a bank guarantee is required for the builder's eligibility, when will it be released?
Based on the perceived risk, the underwriter may seek a bank guarantee to support the builder's application. If there are no claims in the 6� years following completion (the period of the builder’s warranty to the owner), then the bank guarantee will be released at that time.

Does the builder require deeds of indemnity?
There may be certain instances where a Deed of Indemnity may be required to support the builder's application for eligibility. This forms part of the underwriting assessment with the requirement for a Deed of Indemnity made on an individual case by case basis.

Myths and Facts

Myth: The builder is the beneficiary of warranty insurance.
Fact: The homeowner is the beneficiary and ultimately pays for the insurance (the builder passes on the cost). Warranty insurance is a legislative requirement designed to protect consumers, not builders.

Myth: Warranty insurance is difficult to obtain.
Fact: More than 97% of builders obtain the warranty insurance they apply for. About 3% continue to work through the process of obtaining their required cover. Builders experiencing difficulty can access Builder Assist, a NSW government-sponsored program offering free advice on structuring and improving the company's financial position.

Myth: Insurers take little risk for the premiums they collect.
Fact: The risk to the home owner and insurer when a builder becomes insolvent is enormous. A home warranty policy is limited to $200,000 and 7 years for each job. In 2001 two builder insolvencies left 36 unfinished contracts totalling over $4.5million. A small builder doing 10 jobs per year could leave unfinished or defective homes costing home owners hundreds of thousands of dollars and creating a potential liability of up to $14 million for the insurer (7 years x 10 jobs per year x $200,000).

Myth: Home Warranty Insurance has stalled the building industry.
Fact: The housing industry has enjoyed the strongest recovery on record. Leading indicators (housing-finance figures) have increased substantially during the last 12 months and building commencements have remained strong.