The maximum building indemnity insurance payout in SA builders will rise from $150,000 to $250,000, under changes to the Building Work Contractors Act and associated Regulations announced by the South Australian Government.

The hike will place added pressure on construction costs, at a time when the industry is seeking to scale up dwelling commencement to meet the state’s ambitious Federal Housing Accord targets.

Master Builders SA worked hard to ensure the payout figure remains well below those in Victoria ($300,000) and NSW ($340,000), and we appreciate the thorough consultation conducted by the Malinauskas Government on this issue.

However, we are disappointed that an opportunity to better align the maximum payout to the contract value of a build has been missed. This would have created a fairer system and reduced premiums for lower risk, smaller contracts.

In more positive news, the limit at which indemnity insurance is required increases from the current $12,000 to $20,000 in line with NSW and Victoria. This is an improvement, but most building contracts for smaller ancillary structures, alterations and additions will not avoid the requirement for building indemnity insurance based on this threshold.

Below is an overview of the changes in a nutshell:

• Premiums can be expected to rise by the commensurate 66% rise in the payout – meaning a policy costing $3000 for a domestic build contract now becomes $5000;
   
• The indemnity limits for builders will be stretched – less jobs will be able to be taken on by many, with the increases set to put a squeeze on trade able to be undertaken by many small and medium enterprises in construction;
   
• The insurer will take a more cautious approach to increasing indemnity limits, making it harder for businesses to grow; &
   
• Increasing complexity in applications for an indemnity eligibility limit for new builders or a limit increase will take longer, cost more and further inhibit quality tradespeople making the jump to being builders.

If you may have any questions please do not hesitate to contact MBIB.