He never mentioned the fact the Government agreed to empower itself to suspend mandatory warranties\/insurance if they weren\u2019t widely available or affordable.<\/p>\n
The Herald became aware of the caveat in the policy by reading government papers, released some time after Penk announced warranties\/insurance would be mandatory.<\/p>\n
Cabinet agreed a suspension could be imposed at any time, for up to two years. It could then be extended for up to two years.<\/p>\n
The Ministry of Business, Innovation and Employment\u2019s (MBIE) view was that there was capacity in the market to respond to warranties\/insurance being mandatory. It also saw scope for new providers to enter the market.<\/p>\n
However, Cabinet acknowledged there was always a risk the backers of these products quit the New Zealand market, as has happened in the past.<\/p>\n
\u201cNew Zealand\u2019s insurance market relies on overseas reinsurers, who may withdraw if systemic building defects emerge or following major shocks such as natural disasters,\u201d Penk said in a Cabinet paper.<\/p>\n
To prevent the building industry from coming to a standstill if the insurance industry retreated, he said the Government needed to be able to push pause on warranties\/insurance being mandatory.<\/p>\n
If a home owner found a defect in their home and their builder went bust, they could be left out of pocket without a warranty\/insurance under the new \u201cproportionate\u201d liability regime.<\/p>\n
Under the existing \u201cjoint and several\u201d liability regime, other parties involved in the build would have to pay for the problem \u2013 hence only around 46% of new builds are currently covered by defects home warranties\/insurance.<\/p>\n
Engineers, architects, surveyors and other building industry professionals typically already have professional indemnity insurance.<\/p>\n
While MBIE supported the changes the Government is pushing ahead with, it had a different view after consulting more widely on the matter in 2019. <\/p>\n
In 2019, MBIE said: \u201cProportionate liability wouldn\u2019t protect home owners from financial loss, and may deter guarantee and insurance providers from entering the market due to the lower likely recovery of damages from others in the system. <\/p>\n
\u201cHome owners would find it hard to show how much each defendant contributed to their loss. Court costs are likely to increase as the parties dispute their proportion of contribution.\u201d<\/p>\n
In 2019, MBIE recognised warnings from the industry that it might not be able to provide widespread coverage. <\/p>\n
The Insurance Council told the ministry: \u201cCurrently, builders warranty insurance in New Zealand is sold by just two providers that are backed by one syndicate at Lloyd\u2019s of London. It should not be assumed that Lloyd\u2019s will be able to provide further capacity in the future, or even to maintain the current level of capacity. <\/p>\n
\u201cLloyd\u2019s capacity for this type of long-tail business can vary from year to year and is influenced by claims performance, changes in the global financial markets, and regulatory requirements and legislative changes both here and in the United Kingdom.\u201d<\/p>\n
Lloyd\u2019s did in fact exit the market, returning to underwrite an offering by Stamford Insurance.<\/p>\n