Consumers in firing line as state building insurer looks to fix battered budget
The agency who oversees domestic building insurance has been canvassing further premium hikes and cuts to claims in an effort mend its battered finances.
As the Allan government pledges to boost protections for those building apartments and houses, internal ministerial briefs show the Victorian Managed Insurance Authority [VMIA] has been drafting a strategy to “subdue claims” and shore up its funding as it is hit by rising costs.
The collapse of Porter Davis put a strain on the Victorian Managed Insurance Authority.Credit: Joe Armao
The fallout could see Victorians building a home hit with even higher insurance costs, despite two recent hikes each over 40 per cent.
The documents, obtained by the state opposition under freedom of information laws, reveal that in May the VMIA told Assistant Treasurer Danny Pearson that it was creating a second “capital management plan” for 2024 to 2029 because its funding ratio remained too close to 100 per cent.
If this figure falls below 100 per cent, the cost of paying out claims is more than the amount of cash being generated.
The Age revealed in April that the collapse of building giant Porter Davis has blown a hole in the finances of the authority, forcing the government to contemplate a bailout. This has been further challenged by high construction costs, more frequent natural disasters and rising medical indemnity.
The VMIA told the minister that their plan would assess whether their first capital plan, which hiked insurance charges for customers among other measures, had gone far enough to keep the agency sustainable.
This included considering “further options” to improve their funding model and exploring ways to “subdue” claims growth.
It noted that deficits related to domestic building insurance were significant contributors to the VMIA’s funding issues, including unprecedented increases in the cost of construction and more builder insolvencies.
This has already had a direct hit on Victorians building a home, prompting the VMIA to hike domestic building insurance for new homes and renovations by an average of 53 per cent in August, 11 months after all premiums were increased by 43 per cent.
Responsibility for this type of insurance will be moved into a new agency as early as next year.
Premiums have also already been hiked on other VMIA customers, including state departments, hospitals and public servants including doctors nurses and teachers.
One ministerial brief noted that premiums had risen by 9 per cent annually over the last five years and that this was “possibly unsustainably high for our government clients”.
Despite these measures, the VMIA warned that the cost of insurance will continue to rise without significant measures to cut claims growth. They said options were also available to government through changing the Wrongs Act, the key piece of legislation for damage claims related to personal injury and death outside of workplaces and transport.
The authority said they remained able to meet their financial obligations and had an “an almost 100 per cent” probability of meeting their liabilities over the next four years.david crowe
But opposition finance spokeswoman Jess Wilson said this meant the VMIA couldn’t guarantee timely payouts, despite already hiking charges on Victorians building and renovating.
“Whether through even higher premiums, cuts to insurance coverage or the growing prospect of a taxpayer-funded bailout – Victorians will pay the price of Labor’s financial mismanagement,” she said.
A government spokesperson said the VMIA provided a lifeline for thousands of families left in limbo by Porter Davis and there are no current plans to increase premiums.
“We are replacing the Victorian Building Authority with a new more powerful watchdog to oversee building and plumbing industries across the state,” they said.
“Under this new model, DBI [domestic building insurance] will no longer impact the VMIA’s financial position.”
The depth of the VMIA’s issues come as the Allan government in October pledged to provide Victorians with better access to coverage when things go wrong, reducing the number of legal claims taken against builders.
The government has also promised to introduce a new 10-year-insurance product for apartment buildings to be created after consultation with industry.
Victorian Ombudsman Marlo Baragwanath is investigating VMIA’s handling of domestic building insurance, including whether they have been fair and reasonable when managing claims.
A VMIA spokesperson said claims exceeded expectations in 2023-24 but their financial outlook remained sound.
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