Report finds Victoria building insurance effective but failing complex claims

Victoria’s last-resort domestic building insurance (DBI) scheme has generally produced reasonable outcomes for most policyholders but revealed weaknesses in how complex claims are handled, according to a report tabled in the state Parliament.

Victorian Ombudsman Marlo Baragwanath’s investigation, “We just want to finish our home: Management of domestic building insurance claims by VMIA,” examines how the Victorian Managed Insurance Authority (VMIA) managed DBI claims, particularly around the March 2023 collapse of Porter Davis Homes Group. “For most people, building or renovating a home is one of the biggest projects they will ever undertake. If their builder becomes insolvent during the process, it can have a profound and immediate impact on their lives, their finances, and their wellbeing,” Baragwanath said.

The inquiry was triggered by a motion from the Legislative Council in June 2024 and focused on VMIA’s readiness for builder failures, its internal processes, timeliness, communication with policyholders, and its approach to disputes.

Investigation reveals pressure points in DBI claims handling

The ombudsman’s office received 125 submissions, reviewed 260 complaints and examined 46 claims files. The referral raised concerns that VMIA had:

• Unreasonably refused, reduced, or delayed claims
• Failed to follow through on commitments
• Resisted transparency
• Underquoted in breach of good faith
• Used non-disparagement clauses when settling claims

The period under review coincided with an increase in building company failures nationally, including large operators such as Privium Pty Ltd and Snowdon Developments Pty Ltd, which left hundreds of unfinished projects. The most significant event was the collapse of Porter Davis on March 31, 2023, affecting more than 1,700 homeowners across Australia.

In the six weeks after Porter Davis went into liquidation, VMIA received more DBI claims than in the prior financial year, with about one in four lodged on a single day. That spike tested the scheme’s capacity and exposed operational constraints in processing DBI claims.

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The report concluded that VMIA’s administration of DBI “achieved a reasonable outcome for most homeowners,” but identified shortcomings in procedure, communication, and transparency that undermined confidence in some claim outcomes, especially for complex matters. “One homeowner described their experience as a ‘double catastrophe’ – first the collapse of their builder, and then their experience with VMIA,” Baragwanath said. While the majority of Porter Davis claimants did not face what the ombudsman considered unreasonable delays, the report found that where delays were significant, the impact on households’ personal and financial circumstances was considerable.

Role and structure of Victoria’s DBI scheme

The investigation revisited the design of Victoria’s DBI framework for context relevant to insurers and intermediaries. DBI is mandatory for domestic building projects over $16,000 and is structured as a last-resort scheme. Homeowners are expected to first seek resolution directly with their builder. DBI responds where the builder has died, disappeared or become insolvent, and provides compensation for incomplete or defective work.

Builders are required to purchase DBI on behalf of homeowners and to provide policy documentation, but homeowners are the insured parties and claimants. The report noted that many homeowners had limited understanding of DBI until they attempted to claim, underscoring an information gap at the point of sale.

The market was initially serviced by private insurers, but exits around 2010 led the Victorian government to amend the Building Act 1993 and designate VMIA as a DBI provider. The amendments aim to stabilise DBI availability and support the construction sector and consumers.

Legislative reforms and shift to a new regulator

During the course of the investigation, the state government implemented reforms to the scheme and its regulatory framework. The DBI scheme is scheduled to move from “last resort” to “first resort” from 2026, meaning cover will respond more broadly rather than only when the builder is dead, missing or insolvent. The value threshold for mandatory DBI will increase from $16,000 to $20,000.

Amendments to the Building Act also introduced a legislative definition of “incomplete” work, which is relevant given the 20% cap on benefits for incomplete works. Some complainants had questioned VMIA’s classification of certain issues as incomplete work rather than defects, affecting claim quantum.

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From July 1, 2025, responsibility for DBI, builder and plumber regulation, and dispute resolution transferred from VMIA and other bodies to the newly established Building and Plumbing Commission (BPC). As a result, the ombudsman’s recommendations are now directed at BPC rather than VMIA.

BPC stated that it agreed in principle with the recommendations, noting they are matters for government consideration. It also “agrees with the report’s description of the events surrounding the collapse of Porter Davis as ‘unprecedented’, and notes that the VMIA and now the BPC have already moved to address many of the issues raised.”

Recommendations target definitions, surge capacity, and communication

The report makes nine recommendations in total: seven addressed to the BPC and two to the Victorian government. All have been accepted in principle. For BPC, the ombudsman recommends:

• Ensuring the DBI policy includes a plain-language definition of “defects” that clearly distinguishes defects from “incomplete works.”
• Updating claims-handling and large-loss guidelines so they define simple, standard, and complex claims in accessible terms; set appropriate actions and workflows for each claim type; and are reviewed regularly, and within six months after any large-loss event.
• Establishing internal policies and processes to support a rapid surge response to large-loss events, including streamlined training, redeployment of internal staff, and external recruitment.
• Providing a single point of contact for homeowners with complex claims to manage communication, continuity, and timeliness.
• Setting clear standards for how often homeowners are updated during the claims process, and tracking performance against those standards, including responsiveness to queries.
• Improving transparency by recording the rationale for liability and quantum decisions on all claim files, clearly communicating decision rationales in language homeowners can understand, and supplying supporting documentation such as inspection and technical reports.
• Re-examining long-standing claims that could benefit from conciliation, with a focus on progressing them to resolution.

Two recommendations are directed at the Victorian government and focus on transparency and structured internal review within the DBI framework. First, the ombudsman recommends legislative change requiring BPC to regularly update information on its website and in its annual report about performance against service standards, including how many claims are processed, how long they take, and how satisfied homeowners are with the process.

Second, the report calls for legislation requiring a formal internal review and conciliation process before a Victorian Civil and Administrative Tribunal (VCAT) appeal can be lodged, and clarifying that VCAT time limits do not begin until internal review is completed. In the interim, the ombudsman recommends that BPC establish and clearly communicate an internal review process pending any statutory reform.