The cost of home warranties offered by some members of the National Association of Home Builders will be raised in several months, but the board administering the insurance program has not determined by how much.
The Home Owners Warranty program, developed by NAHB to help protect new-home buyers against defects and poor workmanship, was amended by the board at a recent meeting in Hawaii. It also voted to raise the insurance premiums paid to a private company for protection when buyers and builders fail to resolve their differences.
The 10-year program, which is used by hundreds of builders in this area and 17,000 throughout the nation, has had a high loss ratio since it was begun in 1974. Current premiums are $2 per $1,000 of the sales price of a house. The insurance is paid for by the builder but the cost is generally passed on to buyers. A board spokesman said that losses have been exceptionally heavy in Colorado, where the premium has already been increased.
In other areas builders have been assessed an extra $50 per house to meet the rising costs of claims paid by the private insurer. As a result of the board action, another small increase for all builders is scheduled to go into effect Jan. 1. a
The current HOW cost for a $100,000 house is $200, and is generally included in the price of the home.
The policy is supposed to protect buyers against defects in workmanship and materials and major structural defects in the first year. It also covers major defects and problems with the electrical, plumbing, heating and cooling systems through the second year.
For the remaining eight years of the plan, insurance against major structural defects is provided by Insurance Corp. of North America, if the builder does make the repairs voluntarily.
However, HOW directors voted to institue a deduction during the last eight years similar to that used in automobile accident insurance. In the HOW program, the owner will have to pay for the amount of the work up to 1 percent of the total cost of the house.
For instance, if major structural work covered by insurance on a $50,000 house is less than $500, the owner will have to pay for it. The insurance would cover the repair work above $500 on a house of that price.
Jane Snow, public affairs director for HOW, which now covers more than 800,000 houses, said that the deductible percentage item was adopted by HOW directors to "discourage frivolous claims."
Modeled after a warranty program used in Great Britain, the HOW program was adopted in 1974 to answer consumer complaints about shoddy workmanship in new houses. It was also implemented to avoid the possibility of a federally legislated new-home warranty program. The Federal Trade Commission made such a recommendation after it studied complaints of home buyers in many parts of the country.