THE housing industry has been dealt a blow by the announcement by insurer Lumley General that it is pulling out of the home builders' warranty market.
Lumley General is believed to have up to 20 per cent of the market for home builders warranty insurance, which is mandatory in all states except Queensland and Tasmania. It said it would not approve any new applications for builders, who by law must secure the cover before they start any residential construction work over $12,000.
Lumley General will stop issuing warranty insurance policies on January 1, leaving builders to search for cover elsewhere.
The company attracted national attention last week when one of Victoria's largest home builders, Glenvill, used an open letter to state and federal consumer affairs and housing ministers to accuse the insurer of demanding a personal indemnity from Glenvill's managing director of more than $3 million while increasing its premium 45 per cent.
Glenvill said the Lumley example was part of a trend towards escalating premiums and exorbitant indemnities being demanded in the highly concentrated home builders' warranty insurance market.
Just four companies now offer the controversial product: Vero, which holds more than 50 per cent of the market, CGU, QBE and Calliden.
Lumley General's chief executive, Vivek Bhatia, said the decision to quit the market was based on economic conditions, profitability forecasts and market size. Mr Bhatia said the company would honour all existing policies, which cover homes for 6½ years after completion.
The NSW Fair Trading Minister, Virginia Judge, said Lumley General's decision to withdraw from the market was disappointing, but she played down the impending crisis many builders say the industry is facing.
Ms Judge said builders covered under Lumley General would have six months to obtain cover from one of the other four insurers.
