Vero’s decision to abandon its home warranty insurance operations will create uncertainty and a lack of competition which could threaten the rest of the sector, an industry leader has warned.
Wilhelm Harnisch, chief executive of the Australian Master Builder’s Association, has said the company’s decision will put pressure on the industry and reduce competition.
“The immediate impact is the uncertainty that it creates in the building industry, and then of course the lack of competition that comes as a result. They are immediate matters of concern,” he says.
“In the broader sense, the degree to which the withdrawal of Vero from this part of the home warranty insurance market is affecting the industry is vital. Without this, builders cannot operate, and this could influence what other state governments may do.”
Harnisch has said the company’s decision may prompt governments in Victoria, Western Australia, South Australia and the ACT to take action to protect the home warranty insurance industry.
Home warranty insurance is required in these states for builders, who must have the product as a license requirement. The insurance is designed to protect customers from faulty or incomplete construction jobs, but Vero’s exit could disrupt hundreds of businesses which require it.
Vero, the industry’s largest player, said in a statement that its decision came after the New South Wales Government said it would take over the underwriting of insurance.
“The decision has prompted Vero to review its position as a national provider,” the statement said.
“After a thorough process where discussions were held with various state governments and all alternatives and operations were considered, Vero has determined that it has no choice but to withdraw from the national home warranty market.”
Now only QBE and Calliden remain major players, with the remaining four state governments now facing the decision of whether to enter the market. If not, QBE could emerge as the dominant provider of insurance with a strong market share.
Harnisch said it is this situation which causes uncertainty, and called on the governments to make a speedy decision.
“Potentially it gives the other players an opportunity, for the question for these remaining insurers is whether underwriters are prepared for the possibility of the governments entering the market. I also note the trigger for Vero withdrawing was New South Wales’ move into underwriting.”
“Whether they’re going to lead into the private sector or not get involved at all, it’s the uncertainty that this situation creates that is the problem, and the lack of competition.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
