Obtaining Domestic Building Insurance (DBI) is legal requirement for all building projects in Victoria over $16,000. As a builder, your ability to obtain and maintain Domestic Building Insurance (DBI) eligibility relies on several financial, regulatory, and operational factors. A crucial element of this is managing accounting risks, which directly impact financial stability and compliance with insurer requirements.

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1. Financial Stability

You must demonstrate financial stability by providing financial statements that meet insurer requirements. Key financial indicators include the following:

• Liquidity: You must have sufficient cash reserves to pay suppliers, subcontractors, and wages. Low liquidity increases the risk of insolvency, which may lead to eligibility being revoked.
• Profitability: Consistently low or negative profit margins may indicate financial instability. Insurers assess profitability to determine if a builder operates sustainably.
• Net Tangible Equity: You typically need to maintain 3–5% of their total construction limit in Net Tangible Equity to meet insurer expectations.

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2. Past Performance

Your past performance may affect DBI eligibility. The insurer may look at the following indicators of past performance:

• DBI Claims: If you have a history of DBI claims due to insolvency, disappearance, or failure to comply with tribunal or court orders, their eligibility may be revoked. Key personnel associated with a failed company may struggle to regain eligibility.
• Build Quality and Compliance: Poor quality builds and ongoing disputes with homeowners may raise insurer risk concerns, potentially leading to stricter conditions or eligibility being revoked.
• Going Concern: If financial distress threatens your ability to complete projects, insurers may decline coverage.

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3. Solvency and Financial Misreporting

Maintaining solvency and accurate financial reporting is crucial in maintaining eligibility.

• ASIC Registration: You must keep your business registered with ASIC; deregistration or liquidation may result in your eligibility being revoked.
• Financial Misreporting: Inaccurate or misleading financial data, whether intentional or unintentional, may lead to audits, penalties, and DBI application denials or cancellations. ‍

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4. Regulatory Compliance and Project Capacity

You must adhere to legal obligations and manage your project exposure effectively.

• Domestic Building Contracts Act 1995 & Australian Consumer Law: Failure to rectify defects or comply with legal obligations can lead to penalties, loss of eligibility, or legal action.
• Project Capacity & Exposure: Insurers evaluate whether a builder is taking on too many projects relative to their financial and operational capacity. Exceeding approved DBI limits may result in coverage denial.

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By understanding and managing the key accounting risks that can influence DBI eligibility—such as financial stability, past performance, solvency, and regulatory compliance—you can help to safeguard your ability to maintain your DBI eligibility. As the construction landscape continues to evolve, builders must remain vigilant in their financial practices and compliance efforts to ensure they can navigate the complexities of the insurance market effectively.

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Next steps

To learn more about Domestic Building Insurance, contact the BRIC team via email at bric-warranty@bric.com.au.

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Written by Shina Ahmed.

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The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. BRIC have no obligation to update this article and shall have no liability to you or any other party arising out of this publication or any matter contained herein. The information in this article is current as at the date of first publication and has been prepared without taking into account your objectives, financial situation or needs. Any advice provided in this article is of a general nature only. Any statements concerning tax, accounting or legal matters are based solely on BRIC’s experience as an insurance broker and are not to be relied upon as accounting, tax or legal advice for which we recommend you consult your own professional advisors. Before making a decision to purchase an insurance policy, please read the relevant Product Disclosure Statement to make sure the policy is right for you.  Insurance cover is subject to policy terms and conditions, including policy limits and exclusions.