Information Required Small Medium Major
Update of business structure, principals and builders licenses where changed
from original Eligibility application Yes Yes Yes
Job Costing system used (if applicable) No Yes Yes
Requested home warranty turnover limit Yes Yes Yes
Proposed non home warranty construction turnover Yes Yes Yes
Required home warranty project limits Yes Yes Yes
Principals’ history in building or other businesses (including adverse issues) first
time PER under HWIF scheme only Yes Yes Yes
Financial statements of the builder – for the last 2 years
Sole Trader or Partnership – Tax returns (individual or partnership) or account-ant prepared and principal certified financial statements
Company or Trust – External accountant prepared and director certified finan-cial statements
Yes Yes Yes
Yes Yes Yes
Copy of trust deed for trusts where applicable Yes Yes Yes
Statement of financial position of principal/s or director/s Yes Yes No
Statement of working capital (including – for medium and major only – details of
aged debtors and creditors reports) Yes Yes Yes
Declarations of solvency and details of any outstanding disputes or legal matters Yes Yes Yes Work in progress report of all projects under construction (including address,
name of owner, contract value, stage of work, undrawn contract value & cost to complete)
Yes Yes Yes
Display Home Information (including address, market value, date completed
or stage of construction and brief description) No Yes Yes
Related Party Financial Statements (if connected by some substantive financial
transaction) No Yes Yes
The review documentation can also be utilised as a ‘Builder Profile Change’ (if required).
In the case of a request for an increased Turnover/Eligibility, an updated statement of director(s) assets and liabilities is required. Evidentiary requirements will be as required for a full Eligibility review as described in section 2. For small and medium builders, rates notices of any properties acquired since the last Eligibility assessment should be called for where appropriate.
The Insurance Agent will consider the results of the review in the context of the builder’s existing Eligibility Profile and Terms and determine whether the builder’s Profile and terms should vary.
The potential outcomes from a PER could be:
• revised Eligibility Approval (note that increases in turnover and job limits should not be granted unless requested)
• revised Eligibility Conditions, including:
• reduced turnover or job limits
• the Building Contract Review Program
• security or additional security
• additional capital;
• release or amended Security
• Suspension of Eligibility (pending resolution of an outstanding issue)
• Cancellation of Eligibility.
Once the review is completed, the Insurance Agent will advise the builder, through their nominated Intermediary of the outcome of the review and the Eligibility Profile and conditions for the builder (either confirming the existing profile and terms if unchanged or the new profile and terms if changed together with any reasons for the change). This correspondence should also advise the expected timing of future reviews.
4.2 Demarcation of Responsibility – Major Builders
For major builders, while the DUA rests with SICorp, the Insurance Agents underwriting responsibilities include:
• Maintaining a complete and up to date underwriting file
• Intermediary training and management regarding major accounts
• Quality assurance on submissions, to confirm completeness
• Providing complete annual PER submissions to SICorp by the due date
• Conducting quarterly assessments and making recommendations to SICorp on the quarterly submissions of major project home builders, and on the quarterly submissions of intensively monitored builders.
• Mercantile extracts & automatic mercantile alerts subscriptions on the entity and key managers
• Taking appropriate action when adverse, or potentially adverse, information is received about major builders, through the mercantile alerts or otherwise
• Preparation and collection of securities
• Providing original securities to SICorp and retaining a copy on file
• Ensuring that any conditions applied are met by the applicant
• Advising the applicant of the dispute escalation process, including the role of underwriting committees
• Licence checks
• Credit & BTC checks
• Inputting financials to BEAT
• Maintaining a major builder register, including
− Due dates for next submission,
− Date of last financials held,
− Last risk rating (BEAT & CSC)
− Last conditions applied, including quarterly intensive monitoring
− Any outstanding conditions
− Any overdue conditions
− Value of securities held & names of indemnifiers
− Any other issues material to the risk management
• Providing monthly updates to SICorp, particularly regarding overdue submissions & overdue conditions
• When terms are issued by SICorp, to check if these terms are already met, e.g. securities already held
• To provide quality assurance on terms and communications issued by SICorp through the Insurance Agent
• Underwriting assessment of multi-unit applications for major builders, as per DUA’s
• Facilitating meetings between SICorp & major builders, where required
4.3 Restrictive Conditions
Where an existing builder is reviewed and it is determined by the Insurance Agent, at the conclusion of the assessment, that a capital injection or a deed of indemnity or other conditions of Eligibility are required to be met, then the applicant must meet the following time frames:
1. The applicant must satisfactorily meet the conditions of Eligibility within 20 business days.
2. The applicant may choose to make a submission, to the Insurance Agents Underwriting Committee, disputing the conditions or review outcome.
• The Insurance Agent will receive a dispute within 20 business days.
• The Insurance Agent’s Underwriting Committee, in accordance with the Underwriting Committee procedures set out in this Guideline and the Complaints and Disputes Procedures Guideline, then considers this submission.
3. If the terms are not met within 20 business days, or a satisfactory submission to the Insurance Agent underwriting committee is not received, the applicant is provided with 10 business days written notice of Eligibility suspension.
(Subject to HWIF approval if projects are believed to be under construction).
4. If the entity subsequently requests Eligibility, a new Eligibility application is required to re-assess the applicant.
To facilitate the operation of 1-4 above, at the time of issuance of terms:
• Builder and Intermediary must be advised of the above time frames and of the possibility of Eligibility being suspended and cancelled, if the terms are not met.
• Applicants are advised of decision disputes processes, initiated by a submission to the Insurance Agent's Underwriting Committee.
• The underwriting file is to be noted accordingly.
4.4 Triggered Special Eligibility Reviews
Special Eligibility Reviews are triggered where there is a major risk management issue identified including one of the following:
• A noticeable alteration in trends (compared to the previous 12 months) being an increase in:
− the number of project certificates (generally in a short time frame) requested by a builder, where there may be concern regarding the capacity of the builder
− the number of known incomplete projects that are outside the builder’s estimated completion time frames
− a builder seeking to exceed or increase the approved annual Eligibility turnover (refer Turnover growth matrix.
• Receipt of adverse market information, including (but not limited to) delinquency in attendance on site, failure to
communicate with consumers, non-payment of sub-contractors or suppliers, or is not contactable on telephone numbers provided.
• Changes (that are of a negative nature) in trade credit days beyond the 30 day ageing category.
• Significant deterioration in the financial or operational circumstances (identified through interim accounts or other sources) of the builder.
• Where financial accounts are received and they contain specific “adverse” commentary related to any component of the reports.
• A request for a certificate that would breach the approved profile limits applied to that builder, by more than 20% of the largest project insured in the past three (3) years (after allowing for inflation impacts on construction values).
• Complaints including consumer complaints to the Insurance Agent and complaints notified to HWIF by NSW Fair Trading (including any disciplinary or intended disciplinary action).
• Court and/or Consumer, Trader and Tenancy Tribunal (CTTT) actions.
• Non-compliance with Court or Tribunal orders.
• Alerts received through credit referencing or credit monitor facilities.
• Dishonored and significantly overdue premium payment transactions – other than innocent incidents.
• Adverse report by a Building Contract Review Program service provider (where applicable).
• Change in builder ownership (i.e. partners or directors).
• Change in nominated supervisor (only where the incumbent nominated supervisor ceases to work for the builder).
During the Special Eligibility Review, which should be undertaken within one (1) month period, the Insurance Agent will stop issuing Certificates of Insurance, only if the issue of the certificate would be to the detriment of HWIF. The Insurance Agent will provide the builder with at least 10 business days written notice of any decision to discontinue issuing certificates together with reasons for the decision. This must include the builder to request via their Intermediary that the decision be escalated to the Insurance Agent’s Underwriting Committee and potentially to the HWIF’s Underwriting Committee
To conduct a Special Eligibility Review, the Insurance Agent will obtain from the builder, through the builder’s Intermediary, current information to enable the review to be completed. Generally, the information required will be the same as for a PER. Where a full Eligibility review has recently been completed and for example, updated financial statements will not be available, the Insurance Agent may use their discretion and obtain relevant available information such as the latest unaudited quarterly accounts.
The outcomes from such reviews could be:
• no change to Eligibility
• revised Eligibility
• restrictive Eligibility Conditions, including
− reduced turnover or job limits
− the Building Contract Review Program
− security
− additional capital
• suspension of Eligibility (pending resolution of an outstanding issue)
• cancellation of Eligibility.
The Insurance Agent may only suspend or cancel Eligibility where this is within their delegated authority. Where it is not within the Insurance Agent’s authority, it must obtain written approval from the HWIF. Where insured projects are still under construction, Insurance Agents are to seek approval from the HWIF before suspending or cancelling Eligibility.
Where it has been determined to suspend or cancel a builder’s Eligibility (whether by the Insurance Agent or by the
HWIF), the Insurance Agent will provide the builder with at least 10 business days written notice of that decision. The reasons for the decision should be provided prior to the effective date of the suspension or cancellation. Insurance Agent will advise the builder via their Intermediary of the right of to request that the decision be escalated to the Insurance Agent’s Underwriting Committee and potentially to the HWIF’s Underwriting Committee.
If appropriate, the Insurance Agent may also resolve that the builder should be subject to ongoing intensive monitoring.
4.5 Builders Subject to Intensive Monitoring
If the Insurance Agent identifies as a result of a PER, a Special Eligibility Review or other means that a builder previously rated as W, X or Y no longer meets the minimum requirements for a Category Y rating, for reasons such as:
• Currently known and on watch.
• Gross Margin deterioration – builder may be “buying” projects.
• Creditor days extending.
• Escalating purchase rate of home warranty insurance contracts - gaining deposit monies to source cash.
• Trading Losses; deteriorating net tangible asset position.
• Restructuring of Groups – asset transfers/quarantining assets.
• Strategic change in the nature/ focus of the business (relative to that traditionally undertaken).
• Deteriorating financial trends (liquidity, profitability);
• Diminished turnover.
• Trade Credit deterioration - terms reduced/ removed.
• Internet alerts – i.e. Dun & Bradstreet.
• Change in management or ownership.
• Change in financial institution.
• Change in progress payment patterns.
• High Growth (refer to table 8)
The builder will be considered high risk and is to be subject to ongoing and intensive monitoring while the builder remains in this category. The Insurance Agent will notify the HWIF of any Medium or Major Builder identified in this situation as soon as practical and in any case within two (2) business days of identification.
The Insurance Agent will develop and document a risk management plan for any builder that is subject to intensive monitoring. The nature of the risk management plan should be suitable for the size of the builder and the builder's genuine prospects for remediation. The risk management plan is to be developed in consultation with the HWIF and following consultation with the builder and their Intermediary.
The risk management plan may rely on existing strategies developed by the builder to remediate its business, provided the Insurance Agent is satisfied the strategies will achieve the objectives of the HWIF. The primary objective of the Insurance Agent will manage down of HWIF exposures and to mitigate any potential loss.
Mitigation strategies developed by the Insurance Agent and incorporated into their risk management plan may include (but are not limited to) one or more of the following:
• managing down turnover and job number limits
• drip feeding issuance of policies and certificates (e.g. one off – one on)
• requirement to use the Building Contract Review Program
• accepting and monitoring delivering of the builder’s remediation strategies (if considered satisfactory)
• obtaining covenants from the builder and principals of the builder requiring delivery on the builder’s remediation strategies (if the strategies are considered satisfactory)
• cancellation of Eligibility.
Satisfactory elements in the builder’s remediation strategies may include (but are not limited to) one or more of the following:
• provision of additional capital and/or refinancing
• restructuring of the business
• cost cutting or revenue generating measures
• sale of the business
• obtaining suitable expert advice.
The Insurance Agent will ensure that any decision taken is made within the Insurance Agent’s Delegated Underwriting Authorities. In particular, the Insurance Agent will ensure any proposal to cancel Eligibility for a builder with incomplete project is referred to the HWIF. All such builders should be placed on a HWIF decline register.
The Insurance Agent will intensively monitor these builders to ensure the builder adheres to the risk management plan and its remediation plan. The Insurance Agent will also require Medium and Major Builders to report on progress at least monthly. The Insurance Agent will review and update the risk management plan to reflect any emerging circumstances.
The Eligibility of a builder subject to intensive monitoring is to be subject to ongoing review and reassessment in the light of any emerging information. As a result, the builder is not subject to the normal periodic Eligibility reviews, but the Insurance Agent will ensure that updated financial and other information is obtained as soon as it is available.
Once the builder’s Eligibility is no longer considered high risk (i.e. the builder meets the minimum requirements for Category X), periodic Eligibility reviews are to occur in accordance with the PER requirements.
4.6 Eligibility Profile Changes
Builders seeking to change their Eligibility Profile need to complete a new profile change application form and refer to Insurance Agents for assessment.
Changes to Profile can create negative financial consequences for the builder. Ramifications include changes to working capital requirements, building cycles, available resources and management. Insurance Agents should examine all factors that may be seen to affect future viability. Insurance Agents will also assess overall financing requirements for the turnover, construction type and maximum contract value sought.
An Eligibility Profile Change request may be a trigger for a Special Eligibility Review if turnover limits are to be increased or adverse findings are identified during consideration.
As part of this assessment, the type of construction, the type of builder base: private sector v public sector, major v small etc., cost basis: cost plus v fixed price should also be assessed.
5. Premium Pricing
The HWIF will issue revised premium rates and/or pricing arrangements from time to time. The Insurance Agent will implement the HWIF’s revised premium rates and/or pricing arrangements from the nominated effective date.
The HWIF will provide the Insurance Agent with at least 40 business days notice of a revision to the HWIF’s revised premium rates and/or pricing arrangements.
5.1 Builders Subject to Flat Rate Pricing
The Insurance Agent may establish for major builders who have standard construction projects, such as a project home builder, an average price that applies to all of the builder’s policies issued (within their Eligibility Profile). The Insurance Agent may only establish average price arrangements where the builder has had a minimum of 25 projects in the past 12 months and the nature of those projects is homogeneous. However, existing arrangements in place with the private insurers are permitted to continue subject to the price cap guarantees in place at the time.
The average price is to be based on the average contract value for a builder over the past 12 months and using the HWIF premium rates and pricing arrangements weighted for the different construction types undertaken within the profile.
Multi units can be included in the flat rate pricing approval, provided they are homogenous in nature over the year.
Annual reviews of the flat rate pricing must examine the actual experience over the 12 months purchasing history as at 31 March each year and applied from 1 July each year.
HWIF reserves the right to revise premiums for this group of builders where a general premium increase is applied other than 1 July.
5.2 Multi – Dwelling Projects Pricing
The multi-dwelling project premium rates apply to all projects where two (2) or more dwellings/units are being built on one site (e.g. low & medium rise buildings containing flats, units etc., villas, townhouses and similar developments).
The multi-dwelling project premium rates also apply to duplex, triplex, terrace and similar developments (i.e. where there are shared services or structures such as common walls, roofing etc.).
The multi-dwelling project premium rates will also apply to developments involving the new construction of a dwelling and ‘granny-flat’ where a separate Certificate of Insurance is required for the ‘granny-flat’. The addition of a ‘granny-flat’
to an existing dwelling will attract the standard alterations/additions (structural) rates.
The rate also applies to alterations/additions to a multi-dwelling property (including high-rise residential buildings). This loading also applies to the non-structural work premium rates for work undertaken on a multi-dwelling property (including high-rise residential buildings).
Free standing cottages on individual sites (i.e. without any shared services or structures) forming part of a multi-dwelling development, which are not intended to be subject to strata title or community title on completion, will attract the single dwelling rates.
6. Securities
6.1 Requirement for Securities
A security may be required, in some circumstances, in order to protect the HWIF. A security can provide some reassurance, regarding risks identified through the Eligibility assessment process. A security can also be required when assessing the risk presented by a particular project application for a Certificate of Insurance. The provision of a security may be an option for offsetting issues of concern identified through the underwriting assessment.
The principle reason for obtaining a security is to influence the behavior of the indemnifying parties in the event that the building entity experiences a deficiency in working capital or requirements for extraordinary capital expense.
The intention being that the business is run with its long-term sustainability as the key objective of management.
The HWIF’s preferred security instruments are standard Deeds developed by the HWIF for this purpose Any variation to a standard Deed of Indemnity must be approved in advance on a case-by-case basis by the HWIF.
The original security (Deeds) will be held by the HWIF. Insurance Agent ensures that the builder has provided the original security (correctly completed) to the Intermediary prior to issuing a certificate of Eligibility or activating terms.
Insurance Agent will make sure that the Intermediary provides the original to the Insurance Agent in a timely fashion (refer also to below section on provision of security documents to the HWIF).
The following security sources are permissible and are required when there are doubts regarding (or as a supplement towards) the Net Tangible Asset backing of the builder applicant, where that party has the financial capacity to back the security.
• there is a related party involvement impinging upon the risk – from the related party (i.e. if an individual the provider of the indemnity should have a financial interest in the building business and if from an entity the entity should be related to the builder)
• there is a related party involvement impinging upon the risk – from the related party (i.e. if an individual the provider of the indemnity should have a financial interest in the building business and if from an entity the entity should be related to the builder)