Home builders are doing it tough. According to Master Builders Australia, they’ve borne the biggest risk of the recent economic downturn and construction costs ballooning 40%.
If your SME has managed all that, you’re one of the lucky ones, with insolvency figures on the rise.
And there’s another spanner in the works – increased insurance premiums.
This article will explain why they’re up, and what you can do about it. Remember, as your broker or adviser, we’re here to help guide and advise you on risk management.
What’s on the table
Let’s break down what this premium hike looks like. For new homes, including single and multi-unit dwellings and owner builders, premiums are set to jump by a whopping 65%.
Renovation insurance isn’t far behind, with a 20% increase on the cards. Overall, the average increase across all domestic building insurance categories is 53%.
Why the Increase?
A big part of the problem is the financial strain on the state-backed builders’ insurance schemes that must pay out records sums in the wake of builder insolvencies.
As well, building costs – materials and labour – continue to rise due to shortages, and supply chain issues. It makes rebuilding a house after a disaster much more expensive than previously. Then, insurers have to pay more for reinsurance – that’s the insurance they pay to offer their services. More frequent and severe disasters are increasing their costs, too.
Impact on Home Builders and Buyers
What does this mean for you as a home builder?
For starters, your project costs will rise. This could lead to higher overall expenses and potential delays as you navigate these increased costs. For prospective home buyers, the higher insurance premiums mean bigger fees and charges, making homeownership even less affordable. They’ll have less financial wriggle room to negotiate with a builder on a contract and funding variations such as for cost blowouts.
In a market already burdened with steep taxes and fees, this is another hurdle to clear.
Strategies for Coping with the Increase
There are strategies to help home builders manage the increase – the obvious, effective budgeting and financial planning are more important than ever.
Consider these 10 approaches:
- Review your insurance coverage to ensure it’s ‘Goldilocks’ right, so you’re not over or underinsured (work from accurate building valuations & costs)
- Weigh up if the length of your coverage – three, six, nine or 12-month terms – is a best fit, but be assured you can ask us to extend coverage, if you need
- Talk to us, as your broker or adviser, about customising your cover for all your business – often bundling policies together can result in lower premiums overall
- Synchronise insurance policies and project contracts from the planning phase until project completion
- Increase your excess (deductibles), so your insurance cover kicks in at a higher amount however make sure that you can afford to pay the cost of the excess at claim time
- Overhaul your risk assessment and risk management approach – an app like 1Breadcrumb, or HammerTech could help streamline workplace and worker safety requirements
- Invest in site security such as fencing, security camera, lighting, GPS tracking for materials, vehicles, equipment, and tools, etc., and
- Keep updated about regulatory changes impacting your work.
Let us help you navigate these tricky times in the construction sector – tap into our risk management expertise.
