Understanding Domestic Building Insurance (DBI)

Domestic Building Insurance (DBI) is an important, but often misunderstood insurance product.

Within Victoria the insurance is available through a government backed insurer, the Victorian Managed Insurance Authority (VMIA), with Master Builders Insurance Brokers (MBIB) being a direct VMIA distributor of DBI.

DBI covers the homeowner (and subsequent owners) where the contracted building work is incomplete or defective. The insurance responds when the builder has either died, disappeared become insolvent, or has failed to comply with a tribunal or court order. The cover last up to six years from completion of the domestic building work, and is a legal requirement to be purchased by the builder on behalf of the homeowner for any projects valued over $16,000.

DBI protects the homeowner by providing cover up to 20% of the building contract price for incomplete works – inclusive of costs such as temporary fencing, locksmiths, contract works insurance, and building permits. The coverage provided is for any additional costs the homeowner would have to pay over and beyond what they would be paying the original builder. DBI policies have overall policy limits, providing homeowners with coverage up to $300,000, which is inclusive of all defective and incomplete work and other losses claimed.

Across the building industry, DBI provides significant support for all residential builders through delivering improved consumer confidence. Through having a DBI policy for their project, irrespective of the size or experience of the builder, homeowners have the same level of cover and peace of mind knowing the VMIA policy will respond if the builder passes away, disappears, or becomes insolvent.

Why has the cost recently increased? ‍

Like all forms of insurance, the policy premiums collected need to cover the total costs of claims received. Over time, the claims received typically fluctuate in terms of claims frequency and average claims cost. When insurers identify a trend with these figures increasing or decreasing, they respond to alter pricing to ensure they have enough funds to cover claims and operating costs. Over recent years the pricing for DBI within Victoria had been very stable, despite the VMIA paying $77.1M of DBI claims across the 2021-2022 financial year.

Across 2023 the VMIA has seen a significant increase in claims, with a rise in residential building insolvencies, including Porter Davis. Over the 2022-2023 financial year, the VMIA has recently reported an over 45% increase in claims paid, paying $112M last financial year, which is a substantial increase in losses. The recent 43% premium increase across all of DBI within Victoria is to ensure the premiums collected are sufficient to pay the incoming and expected future claims. Note that the average cost of a DBI policy within Victoria is similar to what MBIB sees in other states, marginally above for some project types in some states, and well below in others. ‍

Building or renovating a home is often the largest purchase a person makes in their lifetime. While the uplift in claims has increased the focus on the effectiveness of DBI within Victoria, the consumer confidence provided by DBI is vital to the ongoing success of the residential construction industry.

MBIB has a dedicated specialist DBI team that is well placed to assist builders through the eligibility and review process, and also provide support in using the VMIA BuildVic system. MBIB offers insurance solutions across the building and construction industry.

For any questions on DBI, or any other form of insurance, contact MBIB today.

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