Insurance Premiums Are Going Up... Is It All Doom and Gloom?

17th June 2024

Finance & Budgeting Pre-Construction Legal & Contracts News & Industry Insights

This article breaks down the rise in Victorian home building insurance premiums, debunking media scare tactics and explaining its real impact on buyers.

Insurance Premiums Are Going Up... Is It All Doom and Gloom?

Understanding the Increase in Home Building Insurance Costs

The recent announcement of a significant rise in home building insurance premiums in Victoria has sparked concern among home buyers and industry professionals. Reports suggest a 63% increase in insurance costs from August 6, 2024. While this figure may seem alarming, it is crucial to put it into perspective and understand the true impact on home buyers.

Breaking Down the Insurance Cost Increase

The media has presented this increase as another financial burden on home buyers, but what does it really mean?

• The reported 63% increase translates to about $2,500 on a $500,000 build.
• For lower-value builds, say around $300,000-$350,000, the increase is under $2,000.
• The additional cost is comparable to common home upgrades like downlights, premium wall paints, or minor interior modifications.

While every cost increase matters, this rise in insurance premiums is not a major affordability crisis, as some reports suggest.

Media Sensationalism vs. Reality

Colin and Darren highlight a major frustration: misleading media headlines that create unnecessary fear among home buyers. Sensationalist reporting tends to paint a bleak picture, but in reality, the construction industry has stabilized significantly since the challenges of 2022-2023.

• Speed of builds has improved – many builders are now completing homes in five to six months.
• Customer satisfaction is higher – buyers who signed contracts in mid-2023 are seeing their homes completed on time and within expectations.
• Builders are in a better financial position – helping prevent major collapses like those seen in previous years.

Why Are Insurance Premiums Increasing?

The Victorian Managed Insurance Authority (VMIA) has had to cover substantial payouts due to builder failures in recent years. This premium increase ensures the long-term sustainability of insurance protection for new home buyers.

Rather than being a sign of instability, this measure is designed to strengthen industry safeguards, ensuring that if a builder does collapse, buyers have a financial safety net in place.

Putting the Cost in Perspective

While no one likes additional costs, home buyers should consider:

• Savings from faster build times: Many builders are now delivering homes within contract timeframes, potentially saving home buyers months of rent or mortgage repayments.
• Comparing to other insurance increases: Any time there’s a major flood or disaster, general insurance premiums rise across the board—this is a normal industry practice.
• Understanding what insurance covers: Home building insurance protects consumers against builder insolvency and structural issues, providing peace of mind for their investment.

What Can Home Buyers Do?

For those who have already signed contracts, it’s important to understand how this increase may affect you:

• If your insurance has already been issued, your premium remains unchanged.
• If your insurance has not been issued yet, there’s a possibility the cost may be passed on to you.
• Communicate with your builder to check your policy status and factor in any potential extra costs.

For new home buyers, the key takeaway is that this increase should not deter you from building a new home. The market is stabilising, timelines are improving, and home ownership remains a sound investment.

Key Takeaways

• Insurance premiums are rising by 63%, but this translates to around $2,500 for a $500,000 build.
• The media has exaggerated the impact, creating unnecessary fear.
• The increase ensures the sustainability of VMIA’s insurance protections for home buyers.
• Build times have significantly improved, offsetting additional costs.
• Home buyers should speak with their builder to understand how this affects their policy.

FAQ

1. Why is the insurance cost rising so significantly?

• The VMIA needs to ensure it has enough funds to cover future claims after several builders went under in recent years.

2. Will this affect my current building contract?

• If your insurance has already been issued, the increase won’t apply to you. If not, check with your builder.

3. Should I delay building my home because of this?

• No. The market is in a much stronger position now, and the increased cost is minimal compared to the overall investment in a home.

4. What benefits do I get from this increased premium?

• While you won’t see immediate tangible benefits, the increase ensures that VMIA remains strong and can protect home buyers if needed.

Glossary of Terms

• VMIA (Victorian Managed Insurance Authority): The government-backed insurance provider that covers home buyers in the event of builder insolvency.
• Home Building Insurance: A mandatory policy protecting buyers against financial loss if their builder fails to complete the project.
• Premium: The amount paid for an insurance policy.
• Affordability Crisis: A term used by media to describe increasing housing costs, though in this case, the additional insurance cost is relatively minor.

Listen to the Full Episode

For a deeper discussion on this topic, listen to the full episode here: https://homebuildinghub.com.au/posts/ep-56/

About the Home Building Hub Podcast

The Home Building Hub podcast, hosted by industry experts Colin Bischof and Darren Brennan, is Australia’s premier resource for new home buyers. With weekly episodes featuring special guests, the podcast provides objective, high-quality insights into the home building process—completely free and without sales pitches. From understanding financing options to navigating the complexities of building a new home, each episode is packed with actionable advice and tips.

Explore more episodes at http://www.homebuildinghub.com.au and join our growing community of informed home buyers.

Disclaimer

Whilst we’re all about providing value to you, this article should not be considered as legal or financial advice. It contains general information only and is based on the content discussed during the podcast episode. This information is relevant to the episode’s release date and may not be applicable at the time of reading. Always seek independent professional advice tailored to your personal situation before making any legal or financial decisions.