NSW state insurer icare says it's engaging with administrators of building group Bathla, as it faces potential claims through the Home Building Compensation Fund (HBCF). 

Teneo Australia was last month appointed voluntary administrator of The Bathla Group and subsidiary companies after the business was hit by declining sales and property prices and rising construction costs. 

Teneo financial advisory head Stephen Longley said last month the priority was to stabilise the business so that construction activity and property settlements can continue. 

HBCF includes insurance for dwellings of more than three stories where a residential builder goes bankrupt or enters liquidation and leaves incomplete work. Cover is capped at $340,000. 

“icare will continue to engage with the administrator through the voluntary administration process,” a spokesperson told insuranceNEWS.com.au. The insurer says it’s unable to comment further while the process is underway. 

Olvera Advisors says on its website that the size of the Bathla failure, after previous insolvencies in the state, raises the question of the impact on icare. 

“icare’s exposure is real, will run for years, and is nowhere near the headline debt figure but it is also not insignificant and could run to over $360 million,” it says. 

The firm estimates indicative total gross incurred costs of around $30 million in a low scenario, $105 million in a central scenario and $365 million at the upper end of the range. 

Estimates exclude apartment towers, unsettled off-the-plan purchasers, subcontractors or lenders. 

Until an entity actually fails, a homeowner’s remedy is against the builder directly through Fair Trading and the NSW Civil and Administrative Tribunal. 

Olvera says icare’s principal exposure control is the Certificate of Eligibility, which limits how much insured work a builder can hold at once.

“Bathla’s distress was reported for months before administration. If eligibility was reviewed and maintained during that period, icare will be asked why,” the Sydney-based restructuring and advisory firm says.

The problems also again highlight adequacy questions over the $340,000 cap and that “any increase in the cap raises premiums for every builder in the state”, the article notes.