1
NEW HOME WARRANTIES FOR CANADIAN CONSUMERS:
measures to protect against systemic risk and extreme events
A report for the ….
Canadian Home Warranty Council/Conseil canadien des programmes de garantie résidentielle
2308 Arlington Avenue,
Saskatoon, SK S7J 3L3
(306) 665-2525
Prepared by ….
M. Leslie Inc.
30 Elora Road,
Toronto, ON M6P 3H6
(416) 766-7873
URL: www.mleslie.com
April, 2010
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
2
Table of Contents
Executive Summary ............................................................................................................................................................................. 4
Introduction to the Report..................................................................................................................................................................... 4
Methodology ........................................................................................................................................................................................ 5
1) Warranty Program Description, Governance, Policy and Fees......................................................................................................... 6
Program Description......................................................................................................................................................................... 6
Program Governance ....................................................................................................................................................................... 7
Program Policy, Regulation and Enforcement .................................................................................................................................. 8
Program Member Fees and Charges ............................................................................................................................................... 9
2) Consumer Protection Measures, Coverage and Warranty Features ................................................................................................ 9
Consumer Protection Measures ..................................................................................................................................................... 10
What is Eligible for Coverage ......................................................................................................................................................... 10
Warranty Features.......................................................................................................................................................................... 11
3) Risk Management and Use of Financial Models ............................................................................................................................ 12
Risk Management Measures .......................................................................................................................................................... 12
Financial Model Tests..................................................................................................................................................................... 13
4) Private and Non-Profit New Home Warranty Insurers .................................................................................................................... 14
Figure 1, Comparison of Private Insurers and Not-for-Profit CHWC Members ............................................................................ 15
5) Current Warranty Issues and Trends ............................................................................................................................................. 17
In Canada....................................................................................................................................................................................... 17
In Australia ..................................................................................................................................................................................... 20
In the United States ........................................................................................................................................................................ 23
Figure 2, New Home Warranty Claims, 2003-2009 Claims Paid per Quarter by U.S.-based Homebuilders (claims paid in US$
millions........................................................................................................................................................................................ 27
6) Building Regulatory Policy Environment......................................................................................................................................... 29
Sources and Bibliography .................................................................................................................................................................. 31
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
3
Appendix One – Canadian Home Warranty Council Member Comparison......................................................................................... 33
Table 1 - General Program Description....................................................................................................................................... 33
Table 2 – Program Governance .................................................................................................................................................. 34
Table 3 - Program Regulation, Enforcement and Public Policy ................................................................................................... 34
Table 4 – Program Member Fees and Charges .......................................................................................................................... 34
Table 5 - Consumer Protection Measures ................................................................................................................................... 35
Table 6 - Eligibility for Coverage ................................................................................................................................................. 35
Table 7 – Program Warranty Features ........................................................................................................................................ 36
Table 8 - Risk Management Measures........................................................................................................................................ 37
Table 9 - Financial Model Tests .................................................................................................................................................. 39
Appendix Two - Interview List ............................................................................................................................................................ 40
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
4
Executive Summary
This report describes how Canadian new home buyers are protected from systemic risk and extreme events. It compares the principal
features, coverage, policies, fees, risk management measures and tests of Canadian warranty programs and some others and concludes
that:
1. There are as many models of Canadian warranty coverage as there are programs. After defining their warranty obligation, scope
and form - significant differences can still be found among Canadian Home Warranty Council members.
2. Canadian warranty coverage is substantial, high value and will continue to expand. The amount of information available to
consumers about their new home purchase is considerable. When an issue arises, mediation, conciliation and arbitration measures
exist - often managed by a third party and court enforced. Yet no two programs are alike and coverage and features are a
reflection of local market conditions, history, cost, market growth and product evolution.
3. Warranty programs have two means of protecting themselves from systemic risk and extreme events – a management information
system that works closely with builders, and financial models that have been successfully used elsewhere in the financial service
sector. Experience has demonstrated that the two cannot be separated, and have operated successfully over three decades – with
the exception of British Columbia in 1999 - where there are close ties to organizations representing builders.
4. CHWC members have all been affected by growth in multi-family markets, the recent financial service sector crisis, demands to fill
gaps in coverage, and questions about the role of warranty systems in building policy regulation. In responding to these challenges
in Canada they grow stronger – unlike Australia and the United States where warranty programs are in retreat, at risk from insurer
failure, and public policy has undergone wild shifts.
Introduction to the Report
In 2009, the new home warranty system in Canada enrolled approximately two-thirds of homes under construction, the work of 18,000
registered builders. The systems’ program managers supplied an important underpinning to a housing industry that has successfully
withstood the economic shocks felt elsewhere, and has helped to protect the principal financial investment of Canadians. In challenging
times, it is therefore reasonable to ask: How are Canadian new home buyers – in every part of the country - protected from systemic risk
and extreme events? By contrasting the features of warranty programs in Canada, and elsewhere, this report will answer that question.
There is no single warranty model in Canada, or anywhere else. Every program in Canada – no matter its choice of warranty - is
experiencing the impact of change. The British Columbia Homeowner Protection Office (BC HPO) has lost its crown corporation status and
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
5
has become a branch of BC Housing - its reconstruction loan program will end. Alberta and Manitoba face pressure to create mandatory
schemes, as does Nova Scotia within the Atlantic Home Warranty (AHWP) model. Saskatchewan builders have requested a mandatory
scheme – their request, not the government’s. Ontario faces pressure to further refine its governance model, as part of a provincial review
of delegated administrative authorities. Québec’s program is under formal review by the Régie du bâtiment du Québec (RBQ).
These are examples of what has become a pronounced feature of the sector over the past thirty-five years - constant evolving change. And
always, there have been those who believe that each jurisdiction has produced a system appropriate to the needs of the marketplace it
serves. Notwithstanding the common roots of all warranty programs in the period 1972 to 1976, the current differences – and there are
many - reflect the wide range of social, public policy, economic and environmental forces found at work across Canada. 1 One size does
not fit all.
CHWC members have participated in discussions that in some provinces could result in mandatory new home warranty coverage provided
by government. Or just as easily - changes in coverage, the length of warranties, new rules for non-performing contractors, and expanded
consumer education initiatives. These discussions follow recent complaints that caused some governments to commission reports on new
homes - the conclusions of which could affect the operations of the four CHWC self-insured, non-profit, voluntary warranty programs. Since
at other times, Canadian governments have taken aggressive steps to safeguard the quality and integrity of new home construction, the
CHWC has decided to gather and analyze information that answers questions public sector decision-makers may pose about the four nonprofit voluntary warranty programs. This report should assist in that process.
Methodology
The consultant’s methodology relied heavily on both primary and secondary sources of information. Support and letters of introduction were
obtained from the CHWC, and CHWC member staff, to open many doors. We were also afforded a broad range of public and private
documents, and participation by every member in at least two rounds of interviews. The reader should also note that several non-CHWC
Canadian warranty providers participated voluntarily in our research – evidence of the importance and interest in the project. Australian
and American new-home warranty programs also gave generously of their time.
Several confidential documents were provided to the consultant by CHWC members that unfortunately cannot be attributed. Other
secondary sources will be found in the report’s footnotes and bibliography.
For a synopsis of the early formulation of new home warranties in Canada see: Housing & Urban Development Association of Canada, “A Warranty and Insurance Protection Plan for New
Home Buyers”, Toronto. 1974 pages 1, 2 and 3.
1
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
6
1) Warranty Program Description, Governance, Policy and Fees
There are as many models of Canadian warranty as there are programs. Each has common principles and each shares five features: 1) a
statutory or voluntary warranty obligation 2) a warranty scope that can include housing form, tenure, products, systems, appurtenances,
coverage for economic loss, quality and compliance thresholds 3) surety protection for delayed closing, deposits, and deficiency completion
4) a term during which an enrolled builder must respond to purchaser requests and 5) the form of warranty whether public, private forprofit, private not-for-profit, self-supply or hybrid. Their other dissimilar characteristics are what make each program unique.
When public and consumer attention has turned to CHWC member programs, it is often focussed upon their boards of directors and the
number of builder members on those boards. However, more recent concerns about risk levels in the financial service sector has led
programs to fix intently upon their financial health and ways to demonstrate it – a development that has taken place beyond the gaze of
both the public and most provincial governments.
Legislative authority to enforce warranties exists in BC, Ontario and Québec, but differs in its scope. Voluntary non-profit members of the
CHWC do not share the same attitude towards disclosure of their business practices (Alberta disclosing the most information), but neither do
the mandatory schemes (Québec disclosing less than Alberta). It is apparent that overlap does occur - in the amount of business information
made public – between mandatory-statutory programs and voluntary CHWC programs.
CHWC member fees and charges are usually less than private insurers, although cost comparisons are problematic over time because there
is so little to base comparisons upon. Tarion (the largest CHWC member) is 120 times bigger on a revenue basis, than the New Home
Warranty Program of Manitoba (the smallest CHWC member). The functions and charges carried out by the two programs cannot be
compared. And it is also difficult to make comparisons between CHWC members and private insurers. There are 15 private insurance
companies that at one time or another have offered new home warranty insurance in Canada, but only five remain active. 2 The five
companies providing warranty insurance today are Aviva, Blanket, Echelon, Lux and Travelers Guarantee. (It is not actually known how
active Lux is presently, since its parent was involved in sub-prime mortgage origination and appears to have reduced business levels).
Program Description
The characteristics that describe warranty programs (see Table 1) include whether they are:
1. Mandatory-statutory or voluntary
2. Rely on multiple players/partners within the operation
The 15 are (or were): American Bankers, Aviva, Blanket, Commonwealth, Echelon, Kingsway, Lombard General, London Guarantee, Lux, Marathon Warranty, PAFCO, Royal & Sun Alliance,
St. Paul’s, Travelers Guarantee and Wellington. Note that Travelers acquired St. Paul’s who had in turn acquired London Guarantee – making it the longest operating private insurer.
2
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
7
3.
4.
5.
6.
7.
Rely on multiple regulators with oversight of the warranty program
Private sector, public sector, or a combination of both
For profit or not-for-profit
Connected to the home building association in the province directly, or not.
Include all, or some of the elements of a fully balanced consumer protection system comprising a:
a) Formal governance model and multiple stakeholder input
b) Licensing system (voluntary or statutory)
c) Builder competence and training perspective
d) Securitization by builders of the scheme
e) Building inspections
f) Consumer education and expectations management
g) Dispute resolution
h) Health and safety and building integrity attitude towards claims settlement
i) Strong analysis, reserving and reinsurance
There are three provinces that have mandatory-statutory schemes but differ substantially in terms of how they operate. The BC HPO model
is a public-private partnership which relies on two regulators (licensing and warranty, insurance underwriting). BC warranty providers are
private insurers. Québec has one regulator (licensing and warranty), but its warrantors are association not-for-profits, with industry ties.
Ontario‘s model has one regulator, with industry ties, yet operates all aspects of the model under one roof.
There are four voluntary programs that possess many features of the mandatory-statutory programs, for those builders who choose to
participate. In Alberta, Saskatchewan, Manitoba and the Atlantic provinces, not-for-profit builder originated warranty corporations
compete with private sector insurers, and largely dominate their markets. With respect to the fully balanced consumer protection system
elements cited in bullet #7 (above) all voluntary jurisdictions reflect all of the elements in their operations, but to varying degrees and
sophistication depending on their view of needs and benefits, and their degree of reliance on others to provide this element. For example,
everyone relies on a technical competence test of builders, but they vary in terms of whether the scheme takes active control of training, and
do-or-do-not rely on building inspections outside of those done by municipalities (see risk management below).
Program Governance
Public expectations about governance pre-date the creation of warranty programs. Since the creation of the first voluntary program those
expectations tend to have focussed upon the composition of boards of directors, the instructions that programs take from provincial
governments, whether or not there is a published code of conduct, and the existence of public meetings. Table 2 describes how private,
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
8
voluntary non-profit warranty programs, and mandatory-statutory warranty programs compare to each other in the important area of
public expectations.
The makeup, competence and real or perceived biases of warranty program boards of directors has been closely scrutinized since their
inception. But in Canada, there is no pattern. Critics assume that voluntary boards are dominated by self-interested ( sic) builders, and that
consumers are discriminated against. However, both the smallest (Manitoba) and largest (Alberta) voluntary programs have balanced
boards of directors. Tarion and the BC HPO have also balanced the membership of their boards, with approximately half of their boards
comprised of non-builders3.
Tarion, BC HPO and Québec are each directly accountable to a provincial government department, and are subject to formal agreements
on expectations. The other programs also have a long history of close relationships with government policy makers, driven in large part by
the warranty corporations themselves, either directly or in partnership with the provincial home builders’ association. Examples include:
 work by Alberta New Home Warranty (ANHWP) and the Superintendent of Insurance concerning ANHWP’s strategy of voluntary
insurance regulatory compliance
 Saskatchewan New Home Warranty (SNHWP) and CHBA-Saskatchewan’s repeated requests to the province for a statutory model
 and Manitoba New Home Warranty (MNHWP) efforts to attract private insurer reinsurance (stop loss coverage) to calm the
provincial government’s concern about cataclysmic risk.
Four programs have implemented organizational codes of conduct – BC HPO, ANHWP, MNHWP and Tarion. And BC HPO and Tarion
both hold public annual meetings.
Program Policy, Regulation and Enforcement
Every CHWC member program is the offspring of the economic and consumer protection legacy of its province over the past 37 years.
(Please refer to Table 3). BC’s model is a clear product of the failure of high-rise and mid-rise condominium construction practices of the
‘90s, and the system of regulation and inspection that was supposed to take place. (BC’s experience marked a turning point for all
Canadian new home warranty programs). Ontario’s model owes its form to decisions made in the mid-‘70s that coincided with the failure
of some builders, the introduction of rent control, and the first Ontario building code. Québec’s model was built upon its history of, and its
preference for, non-profit warranty programs - and its recent need to raise coverage and protection because of limits on the application of
the Québec building code.4
3
4
BC HPO’s board of directors will be dissolved following the budget statement on its joining BC Housing.
Most of Québec’s 1998 regulatory changes were originally proposed in 1986. Interview with Bruno Nantel.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
9
As statutory models, BC, Ontario and Québec have a formal responsibility to licence builders - and enforce the rights and responsibilities of
licensed and unlicensed builders. The voluntary warranty programs have not assumed this role, but neither do they accept unqualified
builders, or illegal builders, as clients for warranty. Third party private insurers which compete in these provinces do the same to varying
degrees. It is clear however, from our research, that of the companies operating in voluntary warranty jurisdictions, CHWC members do a
much better job at training, assessing and policing builders because of their knowledge of construction practice, historical relationship with
builder organizations, and understanding of the impact of builder competence on consumers.
From a transparency perspective, most programs reveal little information to the public about themselves, their plans, their financial metrics,
business practices or sustainability. Voluntary programs are concerned about individual competitors in their market. And the mandatorystatutory programs in Ontario and Québec have legislative authority that requires a quite high degree of government accountability, rather
than public accountability.
Program Member Fees and Charges
Fees and charges contribute both to a warranty program’s revenue stream, and the perception of consumer value (see Table 4). Programs
rely on similar one-time charges for multi-year coverage. Their price points are comparable in relation to the price-point variation of
housing in each jurisdiction, but reflect the type of constraint that one would expect of a not-for-profit. Interestingly, in some situations
competitors can charge two to three times CHWC member fees - that suggests a less confident handle on risk, and an obvious profit motive.
For example, National Home Warranty (an AVIVA company operating in Western Canada) charges enrolment fees of up to $3,500 for
single family dwellings, and inspection fees on top.
To balance fees for warranty, all programs and their competition use negotiable security from builders to mitigate reserves. Most use the
incentive system of less or no security for highly ranked builders. Statutory programs tend to invoke more security because they can, while
voluntary programs must be more cautious because of competitive strategies of private insurers and transferable builder loyalty. (And in
BC, the reconstruction fee remains in place, with little rationale for its continued existence). Generally speaking, security strategies are more
sensitive for builders than fees. As noted elsewhere, CHWC member fees are generally less than private insurers, for the same or less
coverage.
2) Consumer Protection Measures, Coverage and Warranty Features
Canadian new home buyers have the ability to obtain a lot of practical information on their new home purchase, construction methods,
builder reputation, fees and costs, their rights as purchasers and what to do when a problem arises. This information can be obtained from
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
10
CHWC members, private insurers and a wide array of other sources. All warranty programs rely heavily on the Internet, call lines and print,
to communicate with their members, enrolled purchasers and the larger community.
Canadian new home warranty coverage is substantial, high value and will likely continue to expand. Mediation, conciliation and arbitration
measures are in place everywhere, and are often managed by a third party and court enforced. Differences continue to exist in all
programs – no two are alike – according to eligible buildings and warranty features. Eligible building of coverage is not a reflection of the
warranty program’s form of delivery, but of local market conditions. Program features have an historical base, reflect cost, and have been
determined by market growth and product evolution.
Consumer Protection Measures
In addition to consumer education materials and tools (see Table 5) that are intended to be proactive, CHWC members provide dispute
resolution services (mediation, conciliation and arbitration). Members have the advantage of a superior understanding of builder operating
practices, the builder training system, and competency. Often, this allows CHWC members to avoid dispute resolution - more often than
private insurers. The latter, whose relationship is more financial, is based on their higher fee schedules and a tendency to refuse to pay
claims as fast as CHWC members.
Dispute resolution fees are prevalent among CHWC members, and driven by a range of motives. In some jurisdictions, such services are
outsourced and charged for. By all accounts, the fees are used as incentives for builders to comply with warranties, and for consumers to
avoid frivolous or vexatious complaints. The fees are modest and are subsidized in part. Most programs offer arbitration as a means of
ultimate settlement. Only Tarion permits a formal appeal to an administrative tribunal for final determination of claims. Recently, Tarion
created the position of “ombudsman”, to provide consumers another avenue of service, and reduce external appeals.
Private insurers also provide dispute resolution services. These appear to be demand based rather than prescribed, and are generally twice
the cost of services supplied by CHWC members.
What is Eligible for Coverage
Across Canada (see Table 6), the tale of what is eligible for coverage – manufactured and owner built homes and condominiums stand out
as major exceptions – has less to do with the policies of CHWC members, or private insurers - than it does with local market conditions. It
has also provided the direct point of entry for CHWC’s competitors. Private insurers would not have entered the market in the 1990swere it
not - at least in part - for the absence in the West of warranty for manufactured homes, the early exclusion of high-rise multi-family
buildings, and the Mortgage Insurance Company of Canada’s decision to recognize private insurers.5 The eligible buildings CHWC
5
Ken Burton and Richard Di Muro shed light on the start-up of their programs.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
11
members will cover are based upon local market experience, the voluntary program’s builder market segment and cost. High-rise multifamily buildings are an exception. Expansion of eligibility to include high-rise multi-family strata buildings (condominiums) was a result of
the findings of the Government of BC’s The Renewal of Trust in Residential Construction: Commission of Inquiry into the Quality of
Condominium Construction In British Columbia (The Barrett Report), and the growing market for this type of home.6
So there are still gaps in eligible coverage between CHWC members, between CHWC members and private insurers, and in the
problematic area of building performance expectations. The existence of these gaps can be traced directly to building science challenges
that exist for high-rise multi-family occupancies, concrete, soils and moisture – and emerging ones like green roofs, green building codes
and energy efficiency ratings.
Warranty Features
CHWC members’ minimum and optional warranty coverage appears in Table 7. The reader will discover that each program -acting with
different levels of authority and sometimes in a competitive environment – provides a full range of policies and coverage that varies
according to housing form, tenure, stage of construction and building element. In addition, while most coverage relates to construction
quality and delivery there is also present some form of economic, deposit, completion, lien disposition and/or contractual risk protection for
the new home purchaser and builder.
Coverage should be looked at in relation to factors shaping the CHWC member’s suite of products:
 the market and technical risks in each locale
 technical change and construction innovation
 the price point of coverage in each program (value for money)
 the history of consumer demand for coverage
 the leadership (willingness) of builders who are prepared to offer expanded coverage in competitive markets
 changes in preference for housing form and tenure
 degree of stakeholder attention to issues, especially consumers and governments
 competitive forces
 the size of markets and the ability of CHWC members to develop and sustain a critical mass of coverage and services and
 the complaint or claims experience that the CHWC member has recorded.
Member warranty features reflect their experience and local market conditions.
6
The Renewal of Trust in Residential Construction: Commission of Inquiry into the Quality of Condominium Construction In British Columbia [The Barrett Report]. Government of British
Columbia, June 1998.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
12
3) Risk Management and Use of Financial Models
Canadian warranty programs employ two means of protecting themselves from systemic risk and extreme events – a management
information system that works closely with builders and has evolved over time, and the deployment of financial models that have been
successfully used elsewhere in the financial service sector. Experience has demonstrated that the two cannot be separated.
Risk Management Measures
Table 8 (see Appendix 1) provides a review of the methods that warranty programs employ – often before building activity even begins - to
ensure that a new home is delivered that fulfils the consumer’s contract. These up-front risk management mitigation methods include:
 Builder review and rating
 The amount of builder’s security required
 Builder member warranty performance, financial performance, business practices, consumer service and technical assessment
 The results of consumer surveys and market research
 Third parties that perform reviews and provide declarations
 Job/site inspections that are performed
 Building codes and accepted practices are followed
Taken as a whole, this toolkit of systems and techniques indicates a fundamental commitment by CHWC members to determine and manage
the credentials and competence of builders. It is also apparent that private insurers competing with CHWC members do not scrutinize
builders to the same degree. Insurers rely more on a declaration system by builders, and a system of much higher risk premiums (typical of
the insurance industry). The declaration system may extend - especially for more expensive homes - to a complete set of working drawings
for the project, listings of component systems used in construction, collateral errors and omissions insurance for architects, engineers,
geotechnical and building envelope professionals, and listings of trades.
There is a fundamental difference between warranty program and private insurance approaches. CHWC members use a strategy of
investing, pre-emptively, in the performance of builders over a career, while private insurers generally use an approach which is highly
transactional and aimed predominantly at the ability to assign responsibility and reclaim monies if problems arise. CHWC members do the
latter as well, but strike a balance of preventative and reactive strategies.
CHWC members begin by investing their knowledge and perspective in the development of codes and standards that govern construction,
and then ensure builders possess knowledge of the requirements. Warranty is tied formally to these codes, and a system of construction
performance guidelines is developed to give further depth to what is and is not acceptable construction, and how warranty corporations will
decide on disputes about compliance. Some private insurers use such guidelines, such as Lux Residential Warranty Program in Atlantic
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
13
Canada, but they are more limited in scope, and vaguely written. CHWC members support the system further by sometimes offering, other
times brokering, but at least making training a requirement, and then rewarding builders with better risk pricing depending on their level of
competence, and reduced security and construction inspections. Such “working the file” activity will vary across the country. It depends
more on the extent of intervention that member programs are willing to undertake, in their relationship between builders and consumers.
To complement the programs’ investment in builder training, some CHWC members rely on consumer surveys and research to monitor
performance and consumer satisfaction. This information is used to improve systems, publicize metrics, and recognize builders which lead
by example.
Financial Model Tests
Table 9 (see Appendix 1) illustrates how actuarial methods, benchmarking, regulatory compliance, public access to financial statements and
common methods of sharing risk among warranty programs will protect consumers against the worst risk scenario.
In Canada, there appears to be a growing preference in government circles for a public-private model that has a government program
manager and regulator, and private sector insurance warrantor (for profit, or not). The motive appears to be the sustainability of models
and corporations under extreme load, such as that experienced in BC. This appears to match a trend in government toward public-private
partnerships (P3’s) as the way to balance control of outcomes, and limit financial risk. Public sector decision-makers appear to believe that
this will insulate consumers from cataclysmic events like the BC “leaky-condo” crisis. As demonstrated below - in our analysis of other
jurisdictions - this view has some merit, but may place too much stock in the desire of insurance companies to willingly participate, and for
the model itself to be sustainable over time.
Over the past decade, CHWC members have developed a more insurance-style suite of tools to determine sufficiency and financial strength.
The larger the program, the more elaborate is the system of determining adequate reserves for administration of the programs, supply of
services, and payment of claims for repair. This increased sophistication, spurred on by a broad strategy across all programs to voluntarily
embrace the solvency and going-concern principles of the legislation which regulates insurers, is supported by CHWC best practices. The
core of this approach is the use of capital asset testing techniques and the extent to which these are based on historical patterns of need,
and an analysis and forecast of future risk. Large CHWC programs have very sophisticated analysis of scenarios, and aggressive reserve
targets. Small CHWC markets are also evolving, but with less elaborate protocols.
The wild card in Canada is the role of private insurers in risk strategy. Currently, private insurers compete in four voluntary jurisdictions,
are partners in P3’s in some statutory jurisdictions, and stop-loss or other indemnifiers of CHWC members. Through various treaties,
insurers also back each other and share risk. All CHWC programs (except Tarion and Saskatchewan) believe the use of some form of stopA report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
14
loss or other reinsurance by a third party is an important or necessary strategy. At issue is whether private insurers, and warranty
programs dependent on outsourced insurers, provide certainty for large, cataclysmic risks at a level which exceeds that of the member
warranties. It is clear from our analysis that BC, Alberta, Ontario and Québec are well reserved and backstopped, and act as if regulated
by their respective insurance regulators (the case in BC). As expected, small markets offer challenges for any model. In Manitoba for
example, the NHWP of Manitoba has attempted to acquire stop loss coverage from five insurers, all of whom refuse to participate in a small
market. Competitors like National operate as warrantors across the Prairies and can cross subsidize operations.
But insurers won’t always succeed, or remain on the scene. There has been turnover among warranty insurers in BC since 1998, and the
international evidence (see Section 4 below) is that this is not uncommon. There is also a record of losses among Canadian property and
casualty insurers that should be examined.
What is clear is that - except for BC - existing CHWC programs have operated successfully and capably with their respective risk and
reserve models, and handled all exigencies. Theory aside, the proof is in the pudding.
4) Private and Non-Profit New Home Warranty Insurers
This section is a comparison of CHWC members in Alberta, Saskatchewan, Manitoba and Atlantic, and their for-profit competition. The
analysis sheds light on those warranty features that provincial governments must address if private insurers are to expand their role, in any
government operated mandatory model that relies upon private insurers. Each row represents an existing feature provided bya CHWC
member. Please note that while new home warranty insurance has been a feature of the Canadian housing industry for 35 years, there is no
insurance company that has been in the Canadian new home warranty market for more than 7 years – in other words not over a complete
business cycle. (The average length of time in the business is three years, prior to exit). Figure 1 is therefore a generalization of several
companies’ performance over almost 20 years during which time some firms may not have been able to fully implement a business plan.
The reader should also note that managing general agencies (MGAs) are not included in our definition of private insurer, some of which
were pioneers in the industry.7 However, a MGA cannot enter a market without the agreement and support of an insurance company,
therefore including MGAs in the comparison would be redundant. Please also turn to Appendix One, Tables 1 to 9 for a more complete
comparison of CHWC member activity.
A “managing general agent” is a business entity appointed by an insurer to solicit applications from agents for insurance contracts, or to negotiate insurance contracts, on behalf of an insurer
and, if authorized to do so by an insurer, to effectuate and countersign insurance contracts. Since the inception of private new home warranty insurance in Canada the six agencies providing
this service have been: National Home Warranty, Pacific Home Warranty Insurance, Progressive Home Warranty Solutions, Residential Home Warranty, Willis Canada and Wylie-Crump.
7
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
15
Figure 1, Comparison of Private Insurers and Four Non-Profit CHWC Members
Builder training †
PRIVATE
INSURERS
No
ALBERTA
SASKATCHEWAN
MANITOBA
ATLANTIC
Builder rating †
Yes
Professional
Home Builders
Institute
Yes
Yes
Manitoba Home
Builders
National Building
Code series
Yes
Yes
“Working the file”
Subrogation,
besides builder
Consumer Survey
Research †
Construction
Performance
Guidelines †
Site inspection
No
No
Yes
No
Yes
Yes, trades.
Yes
No
Probationer or
Regular
Yes
No
No
Yes
Yes
No
Yes
No – Travelers
and National
are exceptions
No – Travelers
and National
are exceptions
Multi-residential
only
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Third party
MSD claims
MSD claims require MSD claims
MSD claims require
requirements
require engineer engineer
require engineer
engineer
(see Table 8)
Trade/supplier
No
No
Yes
No
Yes
training
Dynamic Capital
Unknown
Yes
Yes
No
Yes
Adequacy Testing
Benchmark other
No
Yes
Yes
Yes
Yes
programs
Provincial
Yes
Yes
No
No
No
insurance
regulator
Financial
No
No
No
No
Yes
statement release
Re-insurance and
Yes
Yes
No
No
No
treaties
† In BC and Ontario these are significant functions performed by the BC HPO and/or Tarion
Figure 1 reveals that CHWC members and private insurers have a great deal in common. As insurers, all carry on business in a way which
optimizes consumer protection/coverage with mechanisms that manage risk. There are also differences between the two models that hint at
different origins, risk-reward perspective, and value proposition. These differences are: value, risk model (prevention-response continuum
and cataclysm), and volatility and continuity.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
16
Value
It was noted above that private insurers’ pricing is generally higher than CHWC members. This is not surprising given the profit motive and
profit sharing among multi-national units of private insurers. For those insurers fronted by MGA’s, the cost of overhead continues to inflate
when compared to CHWC members. Since CHWC coverage is more extensive, the value for money equation tends to favour not-forprofits even more. Not-for-profits, because of their historical link to builders, have invested more highly in builder performance to produce
better builder behaviour.
Risk Model
All jurisdictions and all warrantors abide by a risk model. The risk model establishes a balance among many aspects with three dominant
ones defining the model most prominently:
1. builder qualification and building regulation which affect probability of quality of construction, and contractual value,
2. the scope and complexity of dispute resolution mechanisms, which determine consumer justice, customer service and the assignment
of responsibility, and
3. the size and availability of financial recourse in the form of reserves, re-insurance, security and legal action, all of which reflect
remediation of wrong.
Private insurers and builder-originated CHWC members have a different view of these three aspects. They differ both with respect to
cataclysmic value, and their attitude to prevention-versus-remediation. With respect to the latter, CHWC members have stronger ties to the
building community and knowledge of construction science, so the CHWC model tilts more towards prevention of defects by investing in or
requiring more builder training, inputting more actively to codes and standards, and using risk management tools relating to the
classification and performance of builders. Although private insurers use some prevention tools (like inspections) their balance is based
more on the strength of their financial response, and financial evaluation of builder risk, than their commitment to better building and better
builders.
Volatility and Continuity
With the exception of BC, every other province has enjoyed the continuous service of a not-for-profit new home warranty corporation for
more than 35 years. This is an amazing track record. There are many explanations for this longevity, although governments have
intervened from time to time in several provinces. However, as described elsewhere in this document and in what follows, private insurers
have encountered a much more volatile time elsewhere.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
17
5) Current Warranty Issues and Trends
In the 1970s, the housing industry in the English-speaking world – Canada, Australia and the United States – felt the full heat of the
consumer movement’s reaction to the post-war building surge and the bad practices of some member companies. 8 Canadians looked to the
US for examples of how to respond in their marketing communications and the creation of a voluntary warranty, and to Great Britain’s
National House-Building Council as an example of how to self-regulate and secure the support of mortgage insurers 9. However Great
Britain is a unitary state, and the concept of a national warranty scheme did not attract many followers in Canada, Australia or the US. Not
only are provinces and states responsible for most home building legislation and regulation, they also (at the time) had been given
responsibility for most areas of financial regulation. Residential construction is notoriously reliant on local sources of labour, material and
supplies, and local planning authorities usually provide direction to builders. In Canada, a group of Alberta home builders (supported by
Ontario allies) realized this and successfully scuttled a proposal for a national warranty scheme in 1972. A voluntary scheme was launched
a year later in the United States, but it did not pretend to have national ambitions.
The three countries have enough in common that we can look to them for examples of current issues and trends. In Canada, there are a
multitude of current issues affecting warranty programs, but they continue to grow stronger and are deemed essential. In Australia, warranty
programs are in retreat and have been threatened by both insurance failure and withdrawal of government support. In the US, a system that
eschewed the statutory concept of new home warranty to begin with has further withdrawn from the experiments it did attempt – but that
may not matter anyways when one surveys the damage to the housing industry of the current financial crisis.
In Canada
In every region and market in Canada, there are forces that influence warranty programs and the policy-makers that work alongside them.
A quick program-by-program review indicates that:


In the Atlantic region, in 2008 the Province of Nova Scotia drafted An Act to Protect the Deposits of Purchasers of Newly Built
Residential Units, or what it styled a “Homeowner Protection Act”. At the same time, it retained consultants and policy advisors to
lead public discussions on construction quality, contractor licensing and registration, and condominium legislation.
In Québec, the Régie du bâtiment du Québec (RBQ) changed the actuary-consultant it had used for several years, retained a second
consultant to examine its home warranty regulation, and is considering expansion of coverage to include high-rise multi-family
buildings
Ibid., Housing & Urban Development Association of Canada, “A Warranty and Insurance Protection Plan for New Home Buyers”, Toronto. 1974
William Teron and Ken Burton both identify the key role of mortgage insurers, as does Michael Hall in his speech, “Government Intervention – How it Impacts the Warranty Industry” made on
July 30th, 1993.
8
9
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
18





In Ontario, Tarion has been asked to examine both its corporate and regulatory governance best practices
In Manitoba, the November 30th, 2009 Speech from the Throne repeated statements that ….“Our government will work with
homebuilders to develop a New Home Buyers’ Protection Act to provide for warranties that give consumers greater assurance their
new home or condominium will not require major repairs shortly after purchase” ...
In Saskatchewan, the Saskatchewan Home Builders' Association has requested that the provincial government pass legislation that
would mandate third party guaranteed warranty for all new houses constructed by builders
In Alberta, the government received a report that recommended it …. “Establish mandatory new home warranty coverage for the
Province through Service Alberta and continue to build upon the education initiatives developed and accepted under Service
Alberta’s March 2006 report “Assurances and Recommendations Concerning Client Service Issues in Alberta’s New Home
Warranty Industry”10. In addition, it has received other proposals affecting voluntary new home warranties in the province
And in BC, the Province transferred most of the responsibilities of the HPO to a new branch of BC Housing (ending its Crown
Corporation status) and will wind down the 11 year old reconstruction loan program. The HPO will still take responsibility for an
expanded mandatory competency for licensed builders and contractors, and new work in residential building technology.
In addition, there are several trends that influence all members of the CHWC: the growing demand for multi-family units, a risk-averse
financial service sector, persistent concerns about water penetration, energy-efficient and green rating systems, manufactured homes, and
the contribution of new home warranty systems to building, planning and development regulations.
The market share of multi-family/condominium homes has doubled since 1990.11 At the brink of that year’s recession 19% of Canadian
housing starts were condominiums. Since then, condominium market share has never fallen below 14% (in 1991) and has risen to 39% in
2008. In BC, condominium market share is 64%, in Alberta 42%, Ontario 41%, Saskatchewan 33%, Québec 26%, Manitoba 23% - while in
the four Atlantic provinces condominiums represent less than 5% of starts (though Nova Scotia has gone as high as15% twice). As multifamily/condominium homes become a popular choice for Canadians of all classes and in almost every region, there is intense pressure to
include them under warranty cover.
The Canadian financial service sector is known to be risk averse, and new home warranty programs - who operate on its periphery –mimic
the performance and expectations of the sector made up of banks, trust companies, credit unions, and insurers. The closest comparison that
has been drawn in that sector, to warranty programs, is property and casualty insurers. In this group, there have been 14 failures since
10
11
Alberta Municipal Affairs, “Building Envelope Survey In partnership with the City of Calgary, April 2008”, page 3.
“Housing Market Indicators, Canada, 1990–2008”, Canada Mortgage and Housing Corporation
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
19
1990 according to the Property and Casualty Insurance Compensation Corporation (PCICC).12 PCICC analyses indicate that the leading
causes of insurer insolvency are inadequate pricing, and deficient loss reserves. (Insurer insolvency also rose in the 1990s). The other and
most recently discussed characteristic of the sector is the performance of Canadian banks and mortgage lenders compared to their
counterparts in the US. It is widely believed that the recent financial sector collapse did not reach Canada because our lending standards
played a critical role in fending off defaults.13 Policy-makers may have well deserved confidence in Canada’s financial service regulatory
regime, but they ignore the fact that it is not absolute, and unable to prevent insurance failures.
The HPO’s decision to provide five year building envelope warranty coverage against water penetration has had an impact upon every
other program - creating demands for extension of the same coverage. Other programs have to consider how to implement coverage, the
cost impact, and whether or not it can be introduced at the same time coverage is extended to multi-family buildings.
More homes have been built according to the guides provided by energy efficient and “green” rating systems – about 13% of low-rise
housing starts, in 2008. There are presently three national and six regional energy-efficient, and “green” new home programs. 14 The
response to the growth of performance labels by Canadian new home warranty schemes has differed. Some have drafted exclusionary
language for these features – waiting for a time in the future when building science has caught up to real site conditions and expectations.
Others have held discussions with stakeholders and produced technical guides for builders, inspectors and local authorities. Most warranty
schemes – who typically encounter three performance rating systems in their province - are monitoring the movement. However, regardless
of their attitude towards the increased market share of performance labelled homes, every warranty scheme is now dealing with a province
that is intent upon using the building code to raise energy efficiency in new housing. In effect, this means that every scheme’s construction
performance guideline relating to these issues – first pioneered by Tarion – must now be updated.
The number of manufactured new homes delivered in Canada each year is relatively constant – an average 7,609 between 2005 and 2009
(5,632 in 2009).15 Approximately 50% of manufactured home deliveries are made in BC, Alberta, Saskatchewan and Manitoba (and 25%
Dibra, Suela and Darrell Leadbetter , “Why Insurers Fail - the dynamics of property and casualty Insurance insolvency in Canada”, Property and Casualty Insurance Compensation
Corporation, 2007
13
MacGee, James, “Why Didn’t Canada’s Housing Market Go Bust?”, Federal Reserve Bank of Cleveland Economic Commentary, December 2, 2009 and “Don't blame Canada, A country
that got things right”, The Economist, May 14, 2009
14
Leslie, Marshall, “New Home Performance Labels in Canada: The 3 National and 6 Regional Programs, 2008-2007” presented to the Canadian Commission on Building and Fire Codes ,
August 25th, 2009. The national labels are: R-2000, LEED for Homes and EnerGuide. The regional programs are: Built Green, EnergyStar, Green Home Vancouver, Green Home Yukon,
Novoclimat and PowerSmart. Please note that as this report was being printed, the Built Green Society announced that it would expand its program to eastern Canada.
15
The author thanks the Manufactured Housing Institute of Canada for its assistance. Totals based upon labelled deliveries by the Canadian Standards Association and Intertek labels. Please
note that a standard one year manufacturers’ warranty is accepted under conventional CMHC financing.
12
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
20
in Alberta). However, manufactured homes – a feature of many rural communities incorporating the most advanced residential technology –
remain outside warranty coverage in most provinces, with the exception of Atlantic Canada.
Finally, an understanding of the role of warranty programs in the broadly defined Canadian building, planning and development sector has
not yet emerged. In BC, Ontario and Quebec, the warranty programs influence provincial policy-makers in a fashion that the voluntary
programs are unable to imitate. At the same time, construction projects are more complex, and the number of responsibilities shared by
provinces, municipalities, the design professions, other consultants, home builders and the warranty programs grow every day. The thrust of
both mandatory and voluntary programs – into other regulated areas of building construction – can only increase.
In Australia
Like Canada, Australia is a federal state, and much like Canada and the United States new home warranty programs first appeared in the
1970s. Statutory programs currently exist in five states and both federal territories, and these programs may be operated by either state
governments or the private sector. (Tasmania has no statutory requirement for new home warranties). Apart from these general statements,
new home warranty conditions in Canada and Australia are different16. Indeed, a good general description of Australia is that nothing is
sacrosanct – proof in recent years is offered by:





three private new home warranty insurance failures in 2001 - HIH Casualty, General Insurance Limited and FAI General Insurance
Company Limited
four private new home warranty insurance market withdrawals - Dexta (2004), Lumley General (2009), CGU Insurance Limited
(2009) and Vero (2010)
The state of Tasmania’s switch in 2009 from a statutory private program to voluntary private warranty
The state of Victoria’s triple reversal - from statutory government first-resort to statutory private first-resort (1996), to statutory private
last-resort (2002) warranty, and then to statutory government last-resort (2010) warranty
The state of New South Wales’ (NSW) triple reversal - from statutory government first-resort to statutory private first-resort (1997), to
statutory private last-resort (2002), and then to statutory government last-resort (2010) warranty
What Australians (and New Zealand) do share is a common outlook on licensing and regulation that has been made formal through the
creation of Builders Licensing Australasia (www.bla.net.au/default.asp) - which carries out some of the functions of the CHWC – and one
16
This section of the report draws from the conclusions of two recent public commissions. They are the Senate Standing Committee on Economics, Australia’s Mandatory Last Resort Home
Warranty Insurance scheme, Commonwealth of Australia, Canberra, November 2008; the “National Review of Home Builders Warranty Insurance and Consumer Protection, Report” prepared
for the Ministerial Council on Consumer Affairs, Percy Allan & Associates Pty Ltd., June 2002. In addition, several bulletins of the Insurance Council of Australia, the websites of state and
territorial departments, and Mr. Kelvin Nash, Acting Director, Licensing, Home Building Service – New South Wales Fair Trading Department were of great help.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
21
performance guideline, The Building Code of Australia (BCA). The BCA has been given the status of a building regulation by all States and
Territories, see www.abcb.gov.au/index.cfm?objectid=A3ADB900-28B0-11DE-835E001B2FB900AA
The appearance of warranty programs in Australia was contemporary, both to Canada and the United States …..
‘Consumer protection of new homebuyers against builder failure began in Australia in the early 1970’s when a compulsory indemnity
scheme was introduced in Victoria. The scheme was run by two companies linked to the Housing Industry Association and the Master
Builders Association of Victoria. These privately underwritten schemes were subsequently taken over in 1983 by the government-owned
Housing Guarantee Fund Ltd.’ 17
Other private sector warranty programs followed Victoria and soon appeared in South Australia, Tasmania, Western Australia and the
Australian Capital Territory (ACT), but unlike Victoria they did not fail. A government administered warranty program appeared in New
South Wales (NSW) in 1972 and three other public sector programs were introduced to Queensland, the Northern Territories and – as
mentioned above – in Victoria in 1983.
The distinctly Australian phenomenon of new home warranty programs being passed back-and-forth between government and private
sector administration began to emerge in the 1990’s when state run schemes in Victoria (1996) and NSW (1997) reverted to the private
sector after lengthy public criticism of their operations. Then on March 15th, 2001, HIH Casualty, General Insurance Limited and FAI
General Insurance Company Limited – who together held 40% of the new home warranty insurance market – collapsed. Suddenly 20,000
home builders across Australia were without coverage – typically a condition of their license registration – and residential building activity
stalled for five months. The response by all states was to backstop remaining warranty insurers, guarantee the policies of the collapsed
firms, and in NSW and Victoria on July 1st, 2002 to introduce statutory “last-resort” coverage. In order to further soften the impact on
remaining private new home warranty insurers, NSW at the same time withdrew coverage for strata (condominiums) over three storeys – a
feature of both its former first-resort government and private programs. (The strata market is significant in NSW because Sydney is the
largest city in both the state and the nation).
Last-resort coverage is a third party warranty policy that takes effect when a builder dies, becomes insolvent or disappears. Most program
coverage rises to AUS$300,000 and can be claimed up to 6 years later for structural defects. NSW, Victoria, South Australia, Western
Australia and the ACT all have statutory last-resort new home warranty programs. Queensland and the Northern Territory have statutory
17
Housing Industry Association of Australia, ‘Submission on Home Warranty’, 14 January 2002, page 1 to the National Review of Home Builders Warranty Insurance and Consumer
Protection, Report prepared for the Ministerial Council on Consumer Affairs, Percy Allan & Associates Pty Ltd., June 2002.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
22
state-government operated first-resort new home warranty programs, with no limitation on their term of application. In 2008, Tasmania
announced that it would withdraw its statutory requirement for new home warranties, in 2009.
Since the 2001 collapse of HIH, Australian new home buyers had been presented with two quite different models of consumer protection: 1)
statutory private last-resort and 2) statutory government first-resort. A small industry ripple occurred in 2004 when a private warranty
insurer - Dexta Corporation – announced its withdrawal from the business, but the five other private insurers that stepped forward to fill the
gap caused by the HIH collapse continued to provide a stable environment in the absence of Dexta. Then in July, 2009 two of the remaining
insurers - Lumley General and CGU Insurance Limited who together provided policies to 4,000 builders – announced that they would begin
an orderly withdrawal from the business. In November - following advice from its Home Warranty Insurance Scheme Board that a
substantial contraction of the market had occurred as a result of the international financial crisis - NSW announced that it would create a
new “Builder’s Warranty Insurance” scheme, underwritten by NSW and funded by premiums, to come into effect on July 1 st, 2010. Vero
(formerly Royal & SunAlliance) who has been the industry's largest player - with an estimated 40% national market share - then privately
informed NSW officials that it too would withdraw from participation in the NSW program. Vero’s information did not become public until
February 4th, 2010 and since then has produced widespread speculation about the fate of the other statutory last-resort schemes. Ultimately,
this led the states of Victoria and Western Australia to announce that they too would provide government last-resort warranty coverage through public investment bodies that make use of private brokers. (Home builder associations have supported these moves fearing a repeat
of the 2001 work stoppages). As a result, the private warranty insurance sector has now been reduced to QBE and Calliden’s provision of
coverage in South Australia and the ACT. The private last-resort schemes that operated under government statutes have crumbled in every
large market in Australia, and speculation is rampant about what will remain in another year.
In Queensland meanwhile, the state’s Building Services Authority (BSA) - which licenses home builders and many trades (over 82,000 in
2009), conducts contractor and consumer education, is responsible for dispute management, registers private and municipal building
inspectors and plans examiners, and delivers the Queensland Home Warranty Scheme – has sought amendments to its Act that would give
it even more powers as an independent statutory authority. The BSA has also become a convert to consumer education currently hosting one
trade show a month on building or buying a new home. When the international financial crisis began, the BSA began to offer management
consulting services to licensed home builders, and has also appointed insolvency experts to operate builders that have fallen into difficulties.
(A very clear difference between the BSA and CHWC’s public members is that the BSA provides no project coverage over three storeys).
One industry feature that Canadians could find intriguing is that any person who holds a licence or is registered to perform or supervise
construction in Australia, or New Zealand, can use their existing licence to obtain a licence or registration in another state and in New
Zealand. This process was introduced under the Mutual Recognition Act, 1992 and in New Zealand by the Trans Tasman Mutual
Recognition Act,1997. To support the initiative, the Council of Australian Governments (COAG) has agreed to develop a new national
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
23
licensing system that will remove regulated inconsistencies across state and territory borders. A COAG agreement on July 3 rd, 2008 resulted
in a system that initially applied to the following occupations:







Building occupations
air-conditioning and refrigeration mechanics occupations
electrical occupations
land transport occupations (passenger vehicle drivers, dangerous goods)
maritime occupations
plumbing occupations
property agent occupations
A COAG draft of the “National Occupational Licensing Law” and a supporting explanatory paper were released to the Australian public
for consultation on November 13th, 2009 (see www.govdex.gov.au/confluence/display/COAGNL/Home).
In the United States
The vast, complex new home warranty market in the United States is characterized by a mix of express, implied and statutory warranties,
public builder self-warranties, private insurance warranty schemes, and unbridled construction deficiency litigation. However, no discussion
of consumer protection and new home warranties can begin without acknowledging that risk concepts have changed due to the collapse of
the housing finance system, and a series of natural disasters. Within a short period of time the financial system has deteriorated to such an
extent that:




The Federal Housing Administration (FHA) reported at the end of 2009 that almost 10% of its loans were in default
Fannie Mae and Freddie Mac have been under US government conservatorship since June 2008
The US government has invested US$112 billion in the three companies to keep them functioning and is committed to double that to
$200 billion
And housing starts have declined 80% since their peak in 2005
In addition, in the last two decades the United States has encountered a series of natural disasters that has left communities reeling and the
whole country asking how catastrophic losses should be dealt with …..
“The recent upsurge in hurricanes, coupled with increasing residential and commercial development in coastal areas of the United States,
has exposed people and property to an entirely new scale of destruction, with cascading effects on homeowners, businesses located within
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
24
these devastated areas, the insurance industry and financial markets, and the public sector. In 2005, three major hurricanes—Katrina, Rita,
and Wilma—made landfall in the Gulf of Mexico within an eight-week period, killing over fifteen hundred people, with insurance
reimbursements and federal disaster relief of over $180 billion—a historic record. These three storms occurred after four other hurricanes
had caused severe damage in Florida in 2004. In 2008, Texas was hit by Hurricane Ike, the third most costly hurricane in U.S. history. The
occurrence of hurricanes is highly variable and uncertain from year to year. However, it is unavoidable that in the coming years, more
hurricanes will strike the Atlantic and Gulf coasts, and other parts of the nation will experience severe floods and earthquakes, causing
extreme damage to residential and commercial property and infrastructure”.18
So significant have these disasters been that mitigation efforts have had the effect of pushing the United States towards:




a single model code system, the “I-codes” www.iccsafe.org/Pages/default.aspx
more rapid adoption of state-wide building codes, see www.reedconstructiondata.com/building-codes/ and away from the
fragmented “home-rule” concept that marginalized many municipalities
heightened influence for insurer-based advocacy groups like the Institute for Business & Home Safety www.disastersafety.org/
and private initiatives like the Building Code Effectiveness Grading Schedule (BCEGS®) that will grade municipal building code
enforcement which had failed too many communities in states like Florida, Louisiana, Alabama and California
www.isomitigation.com/bcegs/0000/bcegs0001.html
The United States’ home warranty history begins at the same time as Canada and Australia. The Home Owners Warranty (HOW) Corp.
was started as a voluntary scheme in September, 1973 by the National Association of Home Builders (NAHB). NAHB owned both HOW
and the HOW Program until 1981. When the US government deregulated the insurance sector in that year, NAHB transferred its stock in
HOW to the Home Warranty Corporation (HWC), a non-stock membership corporation which then was incorporated as a risk retention
group called HOWIC. HOW, HWC, a Delaware corporation and HOWIC, a Virginia corporation (collectively, the HOW Companies) were
from then on operated as a single business. In 1991, the Virginia Bureau of Insurance began an investigation into HOWIC's financial
status. This investigation led to receivership proceedings that placed the group’s deficiencies in a range between US$15 to US$43.9 million.
In October, 1994 the final receivership order spelt the end of the HOW Companies and with it the only attempt in the United States,
Australia or Canada to operate a national non-profit new home warranty program.19
18
Kunreuther, Howard C. and Erwann O.Michel-Kerjan, At War with the Weather, Managing Large-Scale Risks in a New Era of Catastrophes, The MIT Press, Cambridge MA, 2009, page
xiii. Kunreuther and Michel-Kerian’s guiding principles in this very interesting book are that premiums should reflect risk, and that any special treatment given to homeowners in hazard-prone
areas should come from general public funding, not through insurance premium subsidies.
19
This chronology relies upon United States Court of Appeals for the Fourth Circuit records for 1997 and 1998.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
25
The legacy of HOW is that there are now express and implied new home warranties in 38 states, and statutor y warranties in 12 states
including: California, Connecticut, Indiana, Louisiana, Maine, Maryland, Minnesota, Mississippi, New Jersey, New York, Texas and
Virginia. The statutory systems all provide some combination of requirements that include construction standards, a term of duration, claims
procedure, and a legal remedy for issues under dispute. Just two of these states – New Jersey and Texas – have had provisions that extend
beyond statutory law that could (arguably) resemble a Canadian warranty program. However, in both New Jersey and Texas the state
government has recently taken steps that have either thrown the programs out of balance, or led directly to their demise. As a consequence,
the new home warranty system in the US really consists of self-warranties created by large, public home building companies, and private
insurance warranty companies.
New Jersey
HOW was the direct antecedent of New Jersey’s Bureau of Homeowner Protection, in the Division of Codes and Standards of the
Department of Community Affairs. The State of New Jersey “New Home Warranty Plan” – created in 1977 - is the oldest continuously
operated new home warranty plan in the US. It is open to all registered new home builders, and any builder not participating in one of the
other five state-approved private warranty plans is considered a member. The warranty plan manager estimates it now has 20% of the New
Jersey market.20 It features:
 a one year workmanship, materials, appliances, fixtures, and equipment
 a two year mechanical, electrical and plumbing systems
 a ten year major structural defects
 excluded items include outbuildings, swimming pools, driveways, walkways, unattached patios, fences and landscaping
The Act establishing the Bureau also created a home warranty security fund that is intended to provide enough money to pay claims against
member builders. Plan conditions include a requirement that home buyers notify the builder and provide a reasonable time for repair.
There are two unique aspects of the New Jersey home warranty Act. First, the Bureau is both plan regulator and plan operator competing
with (currently) five private warranty insurers. Second, the home warranty security fund is administered by the State government – not the
Bureau – and the builder security deposits contained in the fund have been the target of significant diversions into State general revenues.
(The government of New Jersey is heavily in debt and has declared itself in a financial crisis). These diversions have been accomplished
without notice to the plan’s independent Board, or consultation. Requests to meet with the plan’s Board, or provide any explanation for
diversions have been ignored by the State.
20
Advice and assistance in this section was received from Peter Desch, Manager, Bureau of Homeowner Protection, Division of Codes & Standards, New Jersey Department of Community
Affairs.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
26
Texas
The Texas Residential Construction Commission (TRCC) was created in 2003 - partially as a result of the experience of a 20 year old
Residential Construction Liability Act that required new home buyers to provide notice to builders of defects. The TRCC adopted a set of
limited warranties that included ….
 a one year workmanship and materials warranty
 a two year mechanical and delivery system warranty
 a ten year structural warranty
 a ten year warranty of habitability
….. and also a set of performance standards more stringent than those required by the US Department of Housing and Urban Development
that were based upon consultations with consumers, builders, manufacturers, municipalities, warranty companies and the Construction
Science Department at Texas A&M University. The TRCC's responsibility also included builder and renovator registration, new home
construction and remodel project registration, certification of private insurance warranty companies, residential construction arbitrators, and
the state-sponsored inspection and dispute resolution programs.
After a controversial history, the TRCC was “sunsetted” out of existence on September 1st, 2009 and will formally cease to exist on
September 1st, 2010. One observer wrote …..
“In January 2009, the Sunset Commission issued its report and recommended that the TRCC be abolished and the Texas Residential
Construction Commission Act be repealed. According to the report, the TRCC was never completely effective at any of its purposes.
On the one hand, the TRCC was never meant to be a true regulatory agency with a clear mission of protecting the public (even though it
had elements of a regulatory agency). It was not designed to ensure that only qualified persons enter the residential construction field and,
thereby, did not work to prevent problems from occurring.
On the enforcement side, the Commission has no real power to require builders to make needed repairs, despite the administration of the
inspection process. Furthermore, because homeowners are required to submit to the Commission's dispute resolution process before they
seek remedies in court, the TRCC effectively denied many parties access to the legal system because of a failure to satisfy this prerequisite.
The Sunset Commission concluded that anything short of a true regulatory program does more harm than good, and that the TRCC should
therefore be eliminated”.21
Duke, Walker M. “The TRCC: Past, Present and Future”, Texas Home Builder Magazine, March/April 2009. Advice and assistance in this section was also received from Ned Muñoz,
General Counsel of the Texas Association of Builders.
21
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
27
…. As well, other observers have said the TRCC was the victim of local politics, too many trial attorneys disguised as home buyer advocates,
and legislative indifference. Since the “sunsetting” of the TRCC, home builder associations have worked to salvage the performance
standards and warranty terms, in the voluntary private insurance and implied warranty schemes that will soon replace the TRCC.
Public Home Builders
At its peak, a startling 25% of starts in the US new home building industry were accounted for by large, publicly traded companies. 22
According to the industry publication Warranty Week, there are 45 home builders that report warranty costs in their public disclosures with claims that peaked at over US$800 million in 2007.23 Figure 1 (below) charts quarterly new home warranty claims from 2003 to the
second quarter of 2009 - claims that recently were US$95.3 million in the first quarter 2009 and US$98.3 million in the second quarter
2009. Warranty Week reports that the US$193.6 million claims total for the first half of 2009 is the lowest figure ever recorded for the new
home industry (down 37% from the same period in 2008). Before that, the lowest level the industry had ever seen was reported in 2003,
when the first half claims total was US$286 million.
Figure 2, New Home Warranty Claims, 2003-2009 Claims Paid per Quarter by U.S.-based Homebuilders (claims paid in US$ millions )24
Ahluwalia, Gopal, “Consolidation of the Home Building Industry”, National Association of Home Builders, February 7 th, 2007
Interview with Eric Arnum, Editor, Warranty Week
24
“New Home Warranties”, Warranty Week , September 24, 2009
22
23
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
28
The editor of Warranty Week has written that ….
“the predicted cost of future warranty work on a new home is $1,000, and if neither the quality of the home nor the price of fixing it has
changed, then a company should accrue $1,000 each time such a home is sold, whether it was sold in 2005, 2007, or 2009. On a home
priced at $200,000, such an accrual would result in an 0.5% accrual rate25” ….
However, as a rule-of-thumb, most public companies accrue 1% of gross revenues for warranty claims – a cost which they will also as a
matter of practice, usually push on to their trade sub-contractors and suppliers.
Private Insurer New Home Warranty
Private insurer new home warranty coverage has been available to US builders since 1980. Typical underwriting guidelines and agreement
terms were based upon the statutes of repose that existed at that time, in most US states, as well as established practices such as the direct
sale of new appliances by builders to home purchasers. Provisions include:
 one year workmanship
 two year systems warranty
 10 year structural warranty
 Buildings up to four storeys
 Projects with a value up to US$30 million, please note per acre
 An optional systems and appliances warranty (in essence a home service contract)
 Minimum three inspections by the local jurisdiction with authority
 Local jurisdiction with authority must achieve rating by the Insurance Services Office, Inc. (ISO) Building Code Effectiveness Grading
Schedule (BCEGS®), a requirement that was introduced to most schemes by1996, following Hurricane Andrew and the Northridge
earthquake
US private insurer new home warranty programs are risk retention groups - owner controlled insurance companies authorized by the
Federal Liability Risk Retention Act of 1986 - that are backstopped by re-insurers. All of their efforts are devoted to screening and mitigation
of enrolled builders.26 So for example, it is not unusual – with 80% of all claims related to soil conditions – that 2-10 Home Buyers Warranty
25
26
Ibid.
Advice and assistance in this section was received from Alison Short, Executive Vice President, 2-10 Home Buyers Warranty
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
29
(2-10) regularly retains the services of independent geotechnical surveyors. Or, that 2-10 annually conducts its own review of up to 2,000
ISO municipal files. (ISO maintains files on approximately 18,000 local jurisdictions with authority).
6) Building Regulatory Policy Environment
The influence of mandatory and voluntary warranty programs – in regulated areas of building construction – has increased steadily since
their first appearance 35 years ago. Just like CHWC members’ assumption of rules and models in the regulated financial services sector,
warranty programs have weighed in on subjects like code enforcement, training and liability – but for a much longer time. (And this should
not be a surprise, since the programs in BC, Ontario and Québec have legislative authority). However, governments in provinces where
voluntary non-profit warranty programs operate should give more consideration to seeking advice from programs on more than just the
building code. The residential construction industry is made up of builders and warranty providers – as well as condominium managers,
building officials, architects, engineers, municipalities and other administrative (e.g. boilers, elevators and electricity)agencies – all of whom
support each other in fundamental ways to improve public safety and raise the performance of buildings. The voluntary non-profit warranty
programs can provide more support and legitimacy than insurers on matters that provinces involve themselves in, such as licensing, training,
certification, the adoption of new technology, liability and enforcement. Demands for increased coverage – of water penetration,
condominiums and green roofs to cite a few – should take account of the many strong connections that exist between issues like:






the demand for expanded condominium coverage four storeys and over, and the absence of any requirements for architects’ and
engineers’ liability insurance in BC, Alberta, Saskatchewan, PEI and Newfoundland
increased energy efficiency objectives in building codes, the expansion of new green technologies, growing market share for
performance labelled homes, and the ability of the new home warranty programs to add content to builder training programs and
assist in their delivery
the provinces’ ultimate responsibility for training and setting qualifications for building inspectors and plans examiners, and the
responsibility for their certification that has – for example - been given to Queensland’s government warranty provider (the Building
Services Authority). Also, it could serve some Canadian jurisdictions well to consider the independent quality ranking of building
departments that is performed by the Insurance Services Office, Inc. on behalf of private warranty insurers in the U.S.
the responsibility for builder and trade licensing, examination and registration that has been given to many warranty programs in
Canada, the US and Australia, but which is far from universal
the responsibility for research in building technology given to the BC HPO, in contrast to that which has been assumed by a few
municipalities, in some provinces, that create ersatz building standards under charter legislation (e.g. Toronto’s green roof standard)
the responsibility that provinces have for limitation periods.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
30
The value proposition, service and protection that Canadian new home buyers receive did expand 35 years ago, when the first warranty
programs came into existence. And it continues to expand, both in form and function, as a unique partnership between government and
industry. This partnership’s exceptional characteristics are recognized by new home warranty providers elsewhere, by the general insurance
industry, and policy makers, as a success. Its expansion has been incremental, but its reach is coast-to-coast, with widespread voluntary
participation in provinces that provide that form of builder entry, and critical support where it is mandatory. In addition, their long coverage
tail, the growing personal investment in housing, the hundreds of thousands of enrolled homes, and the size of their operations means that
CHWC members have assumed a position in the financial service sector that probably wasn’t foreseen by their inventors. Any observer must
therefore conclude that new home warranty programs will - in the future - expand their reach and influence, and become an even more
valued partner.
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
31
Sources and Bibliography
Marshall Leslie (M. Leslie Inc. www.mleslie.com) would like to thank members of the Canadian Home Warranty Council for their
cooperation in this report. Also, the assistance of Aubrey LeBlanc, Aubrey LeBlanc Consulting Inc. was key to the development of the report.
However, all of the opinions expressed are those of the author.
List of Publications and Reports
- Ahluwalia, Gopal, “Consolidation of the Home Building Industry”, National Association of Home Builders, February 7th, 2007
- Alberta Municipal Affairs, Building Envelope Survey In partnership with the City of Calgary, April 2008, Edmonton
- Alberta New Home Warranty Program, Calgary, various documents
- Atlantic Home Warranty, Halifax, various documents
- BC Homeowner Protection Office, Vancouver, various documents
- Brennan, Patrick, “The Day Building Changed”, Ontario Home Builder, Spring 2010
- Canada Mortgage and Housing Corporation, “Housing Market Indicators, Canada, 1990–2008”
- Commonwealth of Australia, The Senate Standing Committee on Economics, Australia’s mandatory Last Resort Home Warranty Insurance
scheme, Canberra, November 2008
- Consumers Council of Canada, Gaps in New Home Warranty Coverage Across Canada, Toronto, November 2008
- Dibra, Suela and Darrell Leadbetter , “Why Insurers Fail - the dynamics of property and casualty Insurance insolvency in Canada”,
Property and Casualty Insurance Compensation Corporation, 2007
- Duke, Walker M. “The TRCC: Past, Present and Future”, Texas Home Builder Magazine, March/April 2009
- The Economist, “Don't blame Canada, A country that got things right”, May 14, 2009
- La Guarantie des maisons neuves de l'APCHQ, Montreal, various documents
- Hall, Michael, “Government Intervention – How it Impacts the Warranty Industry”, speech made on July 30, 1993
- Henton, Darcy, “Thousands of Alberta homes could rot”, Edmonton Journal, May 6, 2009
- Housing Industry Association of Australia, ‘Submission on Home Warranty’, 14 January 2002
- Housing & Urban Development Association of Canada, “A Warranty and Insurance Protection Plan for New Home Buyers”, Toronto.
1974
- Jaffe, David S., David Crump and Felicia Watson, Warranties for Builders and Remodelers, 2nd edition, BuilderBooks®, Washington,
2007
- Kunreuther, Howard C. and Erwann O.Michel-Kerjan, At War with the Weather, Managing Large-Scale Risks in a New Era of
Catastrophes, The MIT Press, Cambridge MA, 2009
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
32
- Leslie, Marshall, “New Home Performance Labels in Canada: The 3 National and 6 Regional Programs, 2008-2007” presented to the
Canadian Commission on Building and Fire Codes, August 25th, 2009
- MacGee, James, “Why Didn’t Canada’s Housing Market Go Bust?”, Federal Reserve Bank of Cleveland Economic Commentary,
December 2, 2009
- Manitoba Family Services and Consumer Affairs, Winnipeg, various documents
- McCreath, Fred J., C.A. “New Home Warranty Programs Evaluation Assessment Report”, a report for Canada Mortgage and Housing
Corporation, Calgary, AB , August 1984
- National House-Building Council, “NHBC Annual Review 2009”, Milton Keynes (UK)
- New Home Warranty Program of Manitoba Inc., Winnipeg, various documents
- New Home Warranty Program of Saskatchewan Inc., Saskatoon, various documents
- Percy Allan & Associates Pty Ltd. “National Review of Home Builders Warranty Insurance and Consumer Protection, Report” prepared for
the Ministerial Council on Consumer Affairs
- Prairie Research Assoc. Inc., A Survey of Home Warranty Programs in Canada , Prepared for Canada Mortgage and Housing
Corporation, Winnipeg, MB, March 23, 1994
- Régie du bâtiment du Québec, Montréal Rapport Annuel (various)
- The Renewal of Trust in Residential Construction: Commission of Inquiry into the Quality of Condominium Construction In British Columbia
[The Barrett Report]. Government of British Columbia, June 1998.
- Service Nova Scotia and Municipal Relations, “An Act to Protect the Deposits of Purchasers of Newly Built Residential Units,
Chapter 40, Acts of 2008”, Halifax
- Tarion Warranty Corporation, Toronto, various documents
- Waldron, Mary Anne, “How T-Rex Ate Vancouver: The Leaky Condo Problem”, 28th annual Workshop on Commercial and Consumer
Law, University of Toronto Faculty of Law, October 16-17, 1998
- Warranty Week, “New Home Warranties”, September 24, 2009
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
33
Appendix One – Canadian Home Warranty Council Member Comparison
These tables describe the characteristics of the seven CHWC members, not necessarily the entire Canadian new home warranty market. For
example, statistics on volumes may relate to the member company in a province - e.g. the APCHQ in Québec - or to the entire province, as
in the case of BC where the HPO is the statutory regulator and program manager for three private warranty insurers.
Table 1 - General Program Description
BC
Alberta
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
Jurisdiction
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Québec
CHWC Member
Program Managers
HPO
HPO
ANHWP
n.a.
NHWP SK
n.a.
NHWP MB
n.a.
Tarion
Tarion
Warranty Providers
-National Home
Warranty Group Inc.
-Pacific Home
Warranty Insurance
Services Inc.
-Travelers Guarantee
Company of Canada
-ANHWP
-Blanket Home
Warranty Ltd.
-National Home
Warranty Group Inc.
-Progressive New
Home Warranty
Program
-Blanket Home
Warranty Ltd.
-National Home
Warranty Group Inc.
-NHWP SK
-Progressive New
Home Warranty
Program
-Blanket Home
Warranty Ltd.
-National Home
Warranty Group Inc.
-NHWP MB
-Progressive New
Home Warranty
Program
Tarion
L’APCHQ
Régie du bâtiment
du Québec (RBQ)
-La garantie de
l’APCHQ
-La Garantie des
Maîtres Bâtisseurs
-La garantie Qualité
Habitation
Newfoundland, New
Brunswick, Nova
Scotia and PEI
AHWP
pending
Legislative Authority
Homeowner
Protection Act
n.a.
n.a.
n.a.
Ontario New Home
Warranties Plan Act
Year established
Registered builders
Enrolled homes
Homes under
warranty
Estimated market
share of CHWC
member
1976 (1998)
5,010
28,060 (2008)
250,000
1974
751 (650 active)
10,898
125,296
1976
202
2,181 (2008)
11,344
1976
145
972 (2008)
3,871
1976
5,840
61,320
454,575
100%
75%
70% of freeholds,
65% of portfolio
outside Winnipeg,
none over 3 storeys
Option
mandatory
optional
70% of builders
85% of units
Only unit condos
and condos to four
stories
optional
optional
-AHWP
-Lux Residential
Warranty Program
Plan de garantie des
bâtiments résidentiels
neufs
1976 (1999)
5,143
26,712
120,000
Homeowner
Protection Act (NS
pending)
1976
825
4,900
20,000
100%
70% of low rise
30% of high rise
mandatory
mandatory
45%
60% of urban
Less rural
Most of
manufactured
optional
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
34
Table 2 – Program Governance
BC
Alberta
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
7 min. to 13 max.
Majority of Board
must be builder
members of the
program in good
standing
See above
11
6
10
5
15
8
15 (L’APCHQ)
12
12
10
5, including
consumer rep.
5, including
consumer rep.
Yes
No
No
No
Yes
No
Yes
No
3, including
consumer rep. and
government rep.
No
Yes
No
No
2 CBA and
renovator
No
No
No
No
7, including
consumer rep. and
CEO
Yes
Yes
Yes
Yes
Table 3 - Program Regulation, Enforcement and Public Policy
BC
Alberta
Saskatchewan
Report authority
Board members
Builder members
9 (HPO)27
428
Non-builders (public)
5, including
consumer rep.29
Executive officer
Ministerial direction
Code of Conduct
Annual public
meeting
No
Yes
Yes
Yes
Annual report
Financial statements
Financial forecast
Business plan
Builder licencing
Enforcement illegal
building
Ministry of Housing
and Social
Development
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
Manitoba
Ontario
Québec
Atlantic
n.a
n.a.
n.a.
Ministry of
Consumer Services
Régie du bâtiment
du Québec (RBQ)
Yes
Confidential
Confidential
Confidential
No
No
Yes
Confidential
Confidential
Confidential
No
No
Yes
Confidential
Confidential
Confidential
No
No
Yes
Yes
Confidential
Confidential
Yes
Yes
Confidential
Confidential
Confidential
Confidential
Yes (by the RBQ)
Yes (by the RBQ)
Service Nova Scotia
and Municipal
Relations (pending)
Confidential
Confidential
Confidential
Confidential
No
No
Table 4 – Program Member Fees and Charges
BC
Alberta
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
Builder registration
$600 ($300
renewal)
$1,000 ($500
renewal)
$500 ($280
renewal)
$2,500 ($500
renewal)
$375 ($325
renewal)
$600 ($200
renewal)
Enrolment
$325 to $750 based
$300 to $1,900
$480 to $880 based
$500 ($175
renewal)
Lowest in Canada
$150 to $460 based
$385 to $1,500
$790 home
$390 for
27
As part of British Columbia’s review of Crown corporations, the Province will transfer a number of the key responsibilities under the Homeowner Protection Act to BC Housing, effective April
1, 2010. The HPO will then become a branch of BC Housing and at a later date – to be announced – the HPO board of directors will be dissolved.
28
ibid
29
ibid
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
35
on purchase price
Security
Dispute Resolution
Fee
Yes
Yes. Outsourced.
based on purchase
price and builder
accreditation level
Yes
Nominal
Renovator
Registration
Yes
No
Table 5 - Consumer Protection Measures
BC
Alberta
on purchase price
and builder risk level
on purchase price
and builder risk level
based on purchase
price
$1,400 condo
experienced
New builder pays
$545
Yes
No charge
Yes
$200
Yes
Yes. Service is
outsourced.
Yes
$100
No
No
Yes
$787.50 nonrefundable
administration fee
No
RBQ licenses
contractors
No
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
Publications and
web
Yes
Publications and
web
Yes
Yes
Yes
Homeowner kit
Yes
Yes, shared cost
Yes
Conciliation for a fee
Yes
Yes
Yes
Yes, enforced by
courts
Available to both
builder and buyer
Yes
Conciliation
No
No
Yes
Yes
No
No
No
No
Education
Yes
Yes
Mediation
Yes
Yes
Conciliation
Arbitration
Yes
Yes
Yes
Yes, enforced by
courts
Appeal
Ombudsperson
No
No
No
No
Yes
Conciliation for a
fee. Third party
conciliators. Soft
arbitration
No
No
Table 6 - Eligibility for Coverage
BC
Alberta
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
Manufactured
Owner built
Condominium
No
Yes
Yes
No
No
Yes
No
No
Up to 4 stories +
parking
No
No
Up to 3 stories,
excluding
underground
parking
Yes
No
Yes
Yes
No
Yes
Renovations
Yes
No
No
No
Transfer of legal title
Yes, except contract
Substantial
reconstruction on an
existing foundation
requires special
application for
coverage
Yes, except contract
Yes
No
Yes, for buildings up
to four stacked units,
even if more than 4
stories. Buildings
with over 4 units
stacked, not
covered.
Optional
Yes, except contract
Yes, except contract
Yes, except contract
Yes, except contract
Yes, except contract
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
No
36
required
Seasonal homes
On Foundations
home or life interest
Year round
occupancy
No
Model home
Already occupied
Yes
No
Other Exclusions
Yes – green roofs
homes
Yes
homes
No
homes
No
Substantial
reconstruction on an
existing foundation
requires special
application for
coverage
Yes
Yes (with coverage
from date of first
sale to new home
buyer)
No
Yes, but optional
Foundation not
covered
Yes, but optional
Foundation not
covered
Yes
Yes. Clock runs from
initial occupancy
Table 7 – Program Warranty Features
BC
Alberta
Maximum protection
Home=$200,000
Condo=$100,000
Condo common
elements lesser of
$100,000 x units +
$2.5MM per building
homes
Year round
occupancy
No
homes
Yes
Yes
Yes. Clock runs
from initial
occupancy
Yes
No
Yes
Yes
Yes
Yes. Clock runs
from initial
occupancy
Yes – green roofs,
performance
promises
Concrete, mold
No
Yes – soils, DIY,
trades, water
penetration, liens,
force majeure
Limited definition of
MSD
Yes
homes
Yes, but must be
maintained
Yes, but builder must
warranty existing
foundation
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
Home=$100,000
Condo=$60,000
Condo common
elements lesser of
$60,000 x units and
$1.5MM per building
(some discretion)
Home and condo =
$75,000
Condo max =
$750,000
Home/condo =
$50,000
No condo common
element maximum
Home=$300,000
Condo common
elements lesser of
$50,000 x units +
$2.5MM
Home=$50,000
Condo=$50,000 x
units
Condo common
elements $1MM
$25,000
$25,000
Home $40,000
Condo $20,000
All low-rise
$260,000
Multifamily lesser of
$130,000 x units or
$1.9MM
Condo lesser of
$130,000 x units or
$2.6MM
$39,000
No
No
Yes
$5,500 plus moving
costs
No
$6000
$3000 ($200/day)
Per diem per person
to 4 persons
Discretionary
No
No
$150 per day
$7,500 max. for all
direct costs
No, contract houses
are exception
No
No
Deposit protection
Covered since 2004
by the Real Estate
Development
Marketing Act
Delayed closing
No
Living expenses
$100 day
maximum
Home = lesser of
20% of sale price
and $100,000
Condo = lesser of
15% of sale price
and $30,000
$3,000 part of
$50,000 building
completion warranty
$6,000 home
$3,000 condo
Financial loss
No
No
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
$20,000
Optional to builder
37
Major structural
defects
Major structural
defects option
Workmanship &
materials
10 years
5 year $100,000
5 years
5 years
7 years
5 years
7 years
No
Extra 5 year
Extra 5 years
No
No
Extra 5 year
Extra 3 year
Yes, 1 year
Yes, 1 year
Yes, 1 year
Home 1 year
$300,000
Condo1 year lesser
of $50,000xunits
and $2.5MM
common elements
Home $260,000
Multifamily $1.9MM
and lesser of
$130,000xunits
Condos $2.6MM
and lesser of
$130,000xunits
Yes, 1 year
Fit for habitation
Water penetration
No
2 years
No
No
1 year
2 years
3 year
No
Exterior cladding
Yes
5 years (10 year
option)
2 years
Home 1 year
$100,000
Condo 1 year
$60,000
Condo common
elements $1.5MM
and lesser of
$60,000xunits
$50,000 home only
No
No
No
2 years
No
Major systems
Substitutions
2 years
No
No
No
No, but implied in
part by water
penetration coverage
No
No
No
No (removed from
optional)
No
No
No
No
No
No
No
Building completion
Lien discharge
Repair warranty
No
No
Applicable building
envelope repair
$50,000 home only
$50,000
Yes, 1 year from
date of repair
No
No
Yes. Additional term
as per original
warranty
Yes
No
No, but house rule of
1 year.
No
No
Yes, 1 year from
date of repair
Optional extra
coverage
10 year water
penetration offered
in the past
No
No
No
No
No, but house rule of
additional term as
per original
warranty
No
2 years
Home 1 year
$300,000
Condo1 year lesser
of $50,000xunits
and $2.5MM
common elements
No
No
Yes,1 year from date
of repair
No
No
No
Table 8 - Risk Management Measures
BC
Alberta
Building codes &
standards input
Effectiveness of
implementation
Builder annual file
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes, at licence
renewal
-Current financial
statements
-Current Financial
Statements
Yes
Yes
Yes
Yes
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
38
- Updated bank
reference form
- Updated builder
member profile
- Business Plan
Update
-Technical
competence
- Post sale
performance
- Customer service
- Management
experience
- Financial stability.
Builder annual
review
- Technical
competence
Builder security
deposit
Yes (by provider)
Yes, based on
performance
Builder training
Yes
Builder rating
Preliminary version.
New system in the
works.
Yes
Yes
“Working the file”
Business failure
incidents
Subrogation, besides
builder
Consumer survey
research
Building Code
Compliant
Construction
Performance
Guidelines
Site inspection
- Updated bank
reference
- Personal Net Worth
(optional)
Annual Risk Rating in
application for
renewal process:
-Based on length of
time in Program,
valid complaints or
conciliations against
builder, & working
capital in relation to
planned production
for next fiscal year
Yes, based on rating
Yes
Triggered more by
new enrolments and
new registrations
Yes
Yes
Yes
Yes
Yes
Professional Home
Builders Instit. of AB,
moisture control and
soils courses
Annual – 5 levels
Yes.
Manitoba Home
Builders Assoc. and
others
Yes, based on
rating. Various
forms accepted.
Yes
Yes - RBQ licence
Yes - mandatory
Annual – 4 levels
Annual – 4 levels
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
binary system of
probationary and
regular
Yes
Yes
No
No
Yes, trades.
No
Yes
Yes
No
Yes
J.D. Power and
Associates
No
Yes
Yes
Yes
Yes
Yes. Consumer
surveys. Consumers
choice surveys.
Yes, 5 years
Yes, 1 year
Yes
Yes
Yes. Use customer
choice awards for
feedback.
Yes, 1 year
Yes
Yes
Yes, based on Tarion,
actively promoted
Yes
Yes
Yes
Yes
Yes, 3 inspections
required on
probationary
Yes, based on
Tarion, actively
promoted
Yes. Inspections for
new builders and
reports by
Yes, may be
required on septics,
for new or problem
Yes
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
Yes, based on
Tarion, actively
promoted
Yes, 3 inspections
required on
probationary
39
members' first 3 units
municipalities
Engineer required to
assess advisability of
homes built on
existing foundations.
Conciliations by
engineers.
Inspection reports by
municipalities on
construction stages
for new builders.
No
No
builders, and
mandatory field
review for high-rise,
per below.
Yes. Builder Bulletin
19 requirements for
third-party
construction field
review of high-rise
construction at
various stages, with
checklists.
members' first 3
units
No. Professionals
not required for
high-rise, as in most
other jurisdictions.
MSD claims require
structural engineer
assessment.
Yes
No
No
Yes – RBQ licence
No
No
Third party
requirements
Municipal letters of
assurance for high
rise buildings
Multi’s must be
reviewed by
professional whose
credentials are
acceptable to
ANHWP
MSD claims require
structural engineer
assessment.
Field bulletin(s)
Trade/supplier
training
No
Yes
No
No
No
Yes, water
penetration course
with SAIT Polytechnic
Table 9 - Financial Model Tests
BC
Alberta
Saskatchewan
Manitoba
Ontario
Québec
Atlantic
Minimum Capital
Test
No
350%-450% target
range
Triennial reserve
studies by actuary
Yes. 95% confidence
level
150%
Yes amount not
known
Dynamic Capital
Adequacy Testing
Comparison to other
programs
Federal Insurance
licence
Provincial insurance
regulator
No
Yes
Triennial report
No
Yes-Annual
No
Annual actuarial risk
retention fund
analysis. Above
90% conf.
Yes (Confidential)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
Yes – OSFI,
Financial Institutions
Commission
No
No
No
Yes
No
No
Yes, but no
jurisdiction over
Tarion. Tarion meets
requirements
voluntarily.
Yes
No
Financial statement
release
Re-insurance and
treaties
Yes, but no
jurisdiction over
ANHWP. ANHWP
meets requirements
voluntarily.
No
Yes
Excess deposit
coverage for hi-rise
condos
No
No insurer will
provide coverage
based on small
market
Annual submission
to RBQ
No
Yes
Yes
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
No
40
Appendix Two - Interview List
Alison Short
Executive Vice President
2-10 Home Buyers Warranty
Royal Peachtree Corners
3587 Parkway Lane
Norcross, GA 30092
720-747-6059
ashort@2-10.com
www.2-10.com/
President and CEO
Alberta New Home Warranty Program
233 Mayland Place N.E.
Calgary, AB T2E 7Z8
403-253-3636
JKozole@anhwp.com
www.anhwp.com
Peter Blandy
Manager of Compliance
Alberta Superintendent of Insurance
Room 402, Terrace Building
9515 - 107 Street
Edmonton, AB T5K 2C3
(780)415-8556
Peter.blandy@gov.ab.ca
www.finance.alberta.ca/business/insurance/index.html
Warren Martinson
Director of Legal & Regulatory Affairs
Alberta Insurance Council
222 - 58th Avenue, SW
Suite 500
Calgary, AB T2H 2S3
403-233-2929
wmartinson@abcouncil.ab.ca
www.abcouncil.ab.ca
Ethan Bayne
Executive Assistant
Alberta Municipal Affairs
104 Legislature Building
10800 - 97 Avenue
Edmonton, AB T5K 2B6
780-427-3744
ethan.bayne@gov.ab.ca
www.municipalaffairs.alberta.ca/index.cfm
Ivan Moore
Assistant Deputy Minister
Alberta Municipal Affairs
16th Floor, Commerce Place
10155 - 102 Street
Edmonton, AB T5J 4L4
780-638-3245
ivan.moore@gov.ab.ca
www.municipalaffairs.alberta.ca/index.cfm
John Kozole
Pat Mulcahy
CEO
Atlantic Home Warranty
15 Oland Cres.
Halifax, NS B3S 1C6
902-450-5064
pmulcahy@ahwp.org
www.ahwp.org/
Aubrey LeBlanc
Aubrey LeBlanc Consulting Inc.
417 Deloraine Ave.
Toronto, ON M5M 2B9
416-322-2411
aubreyleblanc@rogers.com
Bob Maling
Chief Operating Officer, Registrar
BC Homeowner Protection Office
2270 - 1055 West Georgia Street
PO Box 11132, Royal Centre
Vancouver, BC V6E 3P3
604-646-7067
bmaling@hpo.bc.ca
www.hpo.bc.ca/
Jack Mantyla
National Coordinator, Education & Training
Canadian Home Builders Association
150 Laurier Ave. West
Suite 500
Ottawa, ON K1P 5J4
(613)230-3060
mantyla@chba.ca
www.chba.ca
James Christensen
Chief Executive Officer
Conasys Consumer Assurance Systems Inc..
103-788 Harbourside Dr.
North Vancouver, BC V7P 3R7
(604)988-0690
j.christensen@conasysinc.com
Greg Stolz
Executive Vice President
Conasys Consumer Assurance Systems Inc..
103-788 Harbourside Dr.
North Vancouver, BC V7P 3R7
(604)988-0690
greg.stolz@conasysinc.com
www.conasysinc.com/
Jeff Howe
Community Mitigation Analyst
Insurance Services Office, Inc.
545 Washington Boulevard
Jersey City, NJ 07310-1686
(856)985-5600
jhowe@iso.com
www.isomitigation.com/bcegs/0000/bcegs0001.html
Blair Manktelow
Senior Manager
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
41
KPMG LLP (Canada)
333 Bay Street, Suite 4600
Bay Adelaide Centre
Toronto, ON M5H 2S5
416-777-8770
bmanktelow@kpmg.ca
www.kpmg.ca
Richard Di Muro
Directeur général
La garantie Qualité Habitation
7400, boul. Les Galeries d’Anjou
bureau 200
Anjou, QC H1M 3M2
514-354-7526
dimuror@qualitehabitation.com
www.qualitehabitation.com/
www.insurancecouncilofbc.com
www.nahb.org
Sandy Ewen
Vice President
Lombard Canada
105 Adelaide Street West
Toronto, ON M5H 1P9
416-350-4000
sandy.ewen@lombard.ca
www.lombard.ca/Product_Dev_Solutions.htm
Ken Burton
Partner
National Growth Partners
8603 - 104 Street
Edmonton, AB T6E 4G6
780-435-0225
kburton@nationalgrowthpartners.com
www.nationalgrowthpartners.com
Ian Anderson
Director, Research and Planning
Manitoba Family Services and Consumer Affairs
Winnipeg, MB
204-945-7892
ian.anderson@gov.mb.ca
www.gov.mb.ca/fs/index.htm l
Jan Folk
Partner
National Growth Partners
8603 - 104 Street
Edmonton, AB T6E 4G6
780-435-0225
jfolk@nationalgrowthpartners.com
www.nationalgrowthpartners.com/
Bruno Nantel
Directeur général
La Garantie des maisons neuves de l'APCHQ
5930, boul. Louis-H.-Lafontaine
Montreal, QC H1M 1S7
514-353-9960
bnantel@apchq.com
www.gomaison.com/gomaison/garantie/maison_neuve
/
Mike Moore
President
Manitoba Home Builders' Association
Unit 1-1420 Clarence Avenue
Winnipeg, MB R3T 1T6
204-925-2560
mmoore@homebuilders.mb.ca
www.homebuilders.mb.ca/
Peter Simpson
CEO
Greater Vancouver Home Builders' Association
15463 - 104 Avenue, Suite 203
Surrey, BC V3R 1N9
604-588-5036
peter@gvhba.org
www.gvhba.org
Hank Starno
President
Manufactured Housing Institute of Canada
99 Bank Street, Suite 400
Ottawa, ON K1P 6B9
613-747-7083
mhicanada@cwc.ca
www.mhicanada.ca
Rob Tanaka
Manager, Investigations Dept.
Insurance Council of British Columbia
1040 West Georgia St., Suite 300
Box 7
Vancouver, BC V6E 4H1
604-688-0321
David Crump, Jr.
Director of Legal Research
National Association of Home Builders
1201 15th Street NW
Washington, DC 20005-2800
202-822-0200
dcrump@nahb.com
Lori Kosheluk
Chief Operating Officer
New Home Warranty Program of Manitoba Inc.
200 - 675 Pembina Hwy.
Winnipeg, MB R3M 2L6
204-453-1155
lori@mbnhwp.com
www.mbnhwp.com/
Glenn Silliphant
CEO
New Home Warranty Program of Saskatchewan Inc.
#4 - 3012 Louise Street East
Saskatoon, SK S7J 3L8
306-373-7833
snhwp@sasktel.net
www.nhwp.org/
Peter Desch
Manager,
Bureau of Homeowner Protection, Div. of Codes &
Standards,
New Jersey Department of Community Affairs
Box 805, 101 South Broad Street
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
42
Trenton, NJ 08625-0805
609-984-7905
pdesch@dca.state.nj.us
www.state.nj.us/dca/codes/newhome_warranty/nhw.s
ht
Kelvin Nash
Acting Director, Licensing, Home Building Service
New South Wales Fair Trading
Box 972, Level 4 Enterprise House
1 Fitzwilliam Street
Parramatta, NSW 2124
(02) 9895 0801
kelvin.nash@services.nsw.gov.au
www.fairtrading.nsw.gov.au/Tradespeople.html
Paul Pettipas
President
Nova Scotia Home Builders' Association
15A Oland Crescent
Bayers Lake Business Park
Halifax, NS B3S 1C6
902-450-5559
pettipas@nshba.ns.ca
www.nshba.ns.ca
John Hackett
Vice President, Practice Risk Management
Pro-Demnity Insurance Co.
111 Moatfield Drive
Toronto, ON M3B 3L6
416-386-1770
johnh@indplan.com
www.oaa.on.ca
Paul Kovacs
President and CEO
Property and Casualty Insurance Compensation
Corporation
20 Richmond Street East
Suite 210
Toronto, ON M5C 2R9
416-364-8677
pkovacs@pacicc.ca
www.pacicc.com/english/sub_contents.htm
Ian Jennings
General Manager
Queensland Building Services Authority
GPO Box 5099
299 Montague Road, West End
Brisbane, Qld 4001
011-61-7-3225-2931
ian.jennings@bsa.qld.gov.au
www.bsa.qld.gov.au/Pages/BuildingServicesAuthority.a
spx
Christiane Durand
Directrice de la planification et du développement
Régie du bâtiment du Québec
545, boul. Crémazie Est
7e étage
Montréal, QC H2M 2V2
514-864-2509
christiane.durand@rbq.gouv.qc.ca
www.rbq.gouv.qc.ca/dirEnglish/guaranteePlan/renseig
nementsgeneraux-an.asp
Raymond Petit
Direction de la planification et du développement
Régie du bâtiment du Québec
545, boul. Crémazie Est
7e étage
Montréal, QC H2M 2V2
514-864-2535
raymond.petit@rbq.gouv.qc.ca
www.rbq.gouv.qc.ca/dirEnglish/guaranteePlan/renseig
nementsgeneraux-an.asp
Stu Niebergall
Executive Director
Regina & Region Home Builders' Association
#100-1801 MacKay Street
Regina, SK S4N 6E7
306-546-5221
s.niebergall@reginahomebuilders.com
www.reginahomebuilders.com
Mike Duda
Director, Corporate Development
Service Nova Scotia and Municipal Relations
Box 1003
Halifax, MS B3J 2X1
902-424-4580
dudam@gov.ns.ca
www.gov.ns.ca/snsmr/default.asp
John Becevello
Vice President & Chief Financial Officer
Tarion Warranty Corporation
5160 Yonge St.
6th Floor
North York, ON M2N 6L9
416-229-9200
john.becevello@tarion.com
www.tarion.com/home/
Howard Bogach
President and CEO
Tarion Warranty Corporation
5160 Yonge St.
6th Floor
North York, ON M2N 6L9
416-229-3837
howard.bogach@tarion.com
www.tarion.com/home/
Tim Schumacher
Vice President and General Counsel
Tarion Warranty Corporation
5160 Yonge St.
6th Floor
North York, ON M2N 6L9
416-229-3874
tim.schumacher@tarion.com
www.tarion.com
Bill Teron
Chair
Teron International Building Technologies
350 Terry Fox Drive
Suite 110
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle
43
Kanata, ON K2K 2W5
613-599-5608
ottawa@teron.ca
Ned Muñoz
Vice President Regulatory Affairs & General Counsel
Texas Association of Builders
313 E. 12th Street
Suite 210
Austin, TX 78701
(512)476-6346
ned@texasbuilders.org
www.texasbuilders.org/#bf_miniCal_81
Howard Friedman
National Vice President
Travelers Guarantee Company of Canada
20 Queen Street West, Suite 300
Box 6
Toronto, ON M5H 3R3
416-360-8183
hfriedman@travelersguarantee.com
www.travelersguarantee.com/trvGEPortalMain.asp?start
page=/iwcm/Guarantee/products/warranty/ourTeam.h
tml
Eric Arnum
Editor
Warranty Week
10520 66th Road
Forest Hills, NY 11375-2179
(718)896-0367
earnum@warrantyweek.com
www.warrantyweek.com
A report to the Canadian Home Warranty Council/ Conseil canadien des programmes de garantie résidentielle