This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. BRIC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modelling, analytics, or projections are subject to inherent uncertainty, and any analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change.
The intersection between domestic building insurance eligibility and accounting
A builder’s financial health directly affects their ability to maintain DBI eligibility. Staying on top of financial management, ensuring accurate reporting, and keeping projects under control are all essential to safeguarding long-term business stability.
A crucial element of this is managing accounting risks, which directly impact financial stability and compliance with insurer requirements. DBI eligibility and accounting risk are closely linked, financial mismanagement can quickly lead to problems that affect a builder’s ability to continue working.
Here’s how these risks intersect
Financial instability may impact DBI eligibility
Cash flow issues, excessive debt, or financial instability may mean that a builder struggles to meet the insurer’s requirements. Poor financial health can result in eligibility being cancelled or declined, restricting the ability to operate.
Without DBI, a builder cannot secure new projects that require this type of insurance, limiting their income. This can make existing financial pressures worse and, in some cases, force a builder to cease operations altogether.
Regulatory non-compliance and poor project management
Failing to rectify defects, engaging in disputes with homeowners, or not meeting regulatory obligations can result in financial penalties, reputational damage, and increased scrutiny from the insurer. These factors make it harder to maintain eligibility and can contribute to financial instability.
Common financial mistakes
It’s easy to see DBI eligibility as just another compliance requirement, however financial mismanagement can quickly lead to real consequences. Here are some examples of where things can go wrong:
A builder taking on too much work without enough cash flow
A mid-sized builder expanded rapidly, signing multiple new contracts without properly managing their financials. When cash flow tightened, supplier invoices went unpaid, and subcontractors walked off-site. The builder struggled to finish projects, leading to a spike in DBI claims. As a result, their DBI eligibility was suspended, and they were unable to take on new work, forcing them to wind down operations.
Inaccurate financial reporting leading to DBI eligibility being cancelled or declined
A builder submitted financials that overstated revenue and didn’t accurately reflect their liabilities. When the insurer reviewed their accounts, discrepancies were flagged, and their DBI facility was revoked. Without eligibility, they couldn’t secure new projects, and clients walked away, leaving them in financial distress.
These scenarios highlight why maintaining strong financial management and accurate reporting isn’t just about ticking boxes, it directly impacts a builder’s ability to keep working.
Next steps
Feel free to contact the BRIC team for support.
