Functional linguistic communication inventory

Home Warranty Insurance – Tamingthe Ups and Downs of the BuildingCyclePrepared by Peter Hardy and Ben KnightPresented to the Institute of Actuaries of Australia17thGeneral Insurance Seminar7 – 10 November 2010Gold CoastThis paper has been prepared for the Institute of Actuaries of Australia’s (Institute) 17thGeneral Insurance Seminar.The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute andthe Council is not responsible for those opinions.PricewaterhouseCoopersThe Institute will ensure that all reproductions of the paper acknowledge the Author/s as theauthor/s, and include the above copyright statement.The Institute of Actuaries of AustraliaLevel 7 Challis House 4 Martin PlaceSydney NSW Australia 2000Telephone: +61 2 9233 3466 Facsimile: +61 2 9233 3446Email:actuaries@actuaries.asn.auWebsite:www.actuaries.asn.au
Home Warranty Insurance – Taming the Ups and Downs of the Building Cycle2AbstractThe recent Global Financial Crisis (GFC) contributed to a deterioration in the building cycle.This has led to an increase in the number of builder insolvencies in Australia. Further, this hashad a significant impact on the willingness of insurers to participate in the Australian homewarranty insurance market. As a result, there have been a number of structural changes tohome warranty insurance scheme design to help return stability to the market. SomeAustralian states have opted to publicly underwrite the insurance (NSW and Victoria), whileother states have removed the compulsory nature of the insurance (Tasmania). It is unclearwhat responses, if any, will arise from other states.This paper summarises the main characteristics of the home warranty insurance market today,discussing some of the significant changes over recent years. We explore some of thechallenges associated with managing home warranty insurance, particularly emphasizingimplications of the building cycle. We investigate aspects of the actuarial control cycle,providing some suggestions on the best ways to monitor experience, perform actuarialvaluations, price the business and fund a scheme. We also briefly discuss the merits, orotherwise, of privately underwritten versus publicly underwritten schemes.Finally we draw some conclusions in regard to home warranty insurance:The importance of taking a longer term view when managing the business.Public scheme structures are, in our view, better equipped to deal with a compulsoryscheme.Communication of building cycle uncertainties is important when presenting results.The establishment of a national claims database would enable better management ofhome warranty insurance.Funding approaches need to accept a certain level of volatility in results.Keywords: home warranty insurance, pricing, building cycle, incentive mechanisms, GlobalFinancial Crisis, Australia