We report annually on the performance of the Victorian Managed Insurance Authority's domestic building insurance (DBI) scheme.
Domestic building insurance scheme performance reports
We report annually on the Victorian Managed Insurance Authority (VMIA) and private insurers’ provision of domestic building insurance (DBI).
DBI is taken out by builders on behalf of home owners. It is insurance to provide compensation to home owners for losses resulting from non-completion or defects in domestic building work where the builder cannot be pursued directly because they have died, disappeared, or become insolvent.
In Victoria, it is compulsory for builders to obtain DBI in all domestic construction contracts over 16,000 in value.
View the latest performance report
This is our eighth annual report on the performance of Victoria’s domestic building insurance (DBI) scheme. It examines the Victorian Managed Insurance Authority and private insurers’ provision of DBI, covering: the number of eligible builders, the number of project certificates and policies, premium levels, and the number and amounts of claims.
Findings from our 2017-18 performance report
Insurers may have incurred some DBI losses
We use a simple loss ratio to measure the DBI scheme's sufficiency. In 2008, 2009 and 2010, simple loss ratios were over 100 per cent for certificates and policies issues in these years. This means that claims costs for the certificates and policies issued in these years now exceed the premium revenue collected. On this basis, it would appear that collectively, insurers made a loss on DBI in each of these years. However, this may not necessarily be the case, as the simple loss ratio does not account for any income insurers may have earned from investing premium revenue while they wait to pay out claims.
Project certificate numbers have increased
Following a peak at just over 62,414 in 2010, and falls in 2011 and 2012, the total number of DBI certificates has increased each year since (reaching 78,391 in 2017). Project certificates for new dwellings account for the largest share of total DBI certificates issued.
Recent average premium decreases
In 2017 and 2018, the average premium for a project certificate decreased with two new insurers entering the DBI market and the VMIA establishing a new system for selling DBI. Before this, the annual rate of change decreased from 2005 to 2008, reflecting competitive pressures. The average premium was volatile from 2009 to 2010, as a result of all but one private insurer exiting the market. It then increased steadily from 2011 to 2016, reflecting a stable market where the majority of the certificates were issued by the VMIA.
While the annual rates of change have varied, the average premium increased by 28 per cent (in nominal terms) between 2005 and 30 June 2018.