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17 Nov 17 14:05

Buying a house is most likely one of the biggest investment you will ever make. There are myriads of risks associated with it. The main issue is information asymmetry between the home builder and you, as you are likely not an expert in house building. What happens, if you find a structural defect after you moved in? As construction quality is a very important topic you might be looking for home warranties protecting home owners from this risk.

Sam Zhang and I attended International Housing and Home Warranty Conference (IHHWC) 2017 in Tokyo, where the role of warranties for housing in contributing to sustainable societies was a main topic. It is an important forum for countries and market participants to learn from each other, as legislation is different from country to country (or even on a state/province level) pretty much in every direction. From whether a home warranty is compulsory or voluntary, who is liable to provide the homeowner with a warranty to how it is secured through an insurance company, the government or a deposit.

There are countries, which require a warranty for every new-built house by law. In other countries the bank wants to see a warranty, as it is a major risk for them to lose the collateral together with bankruptcy of the homeowner. Others do not have any regulation around it. In terms of coverage, some only cover structural effects, whereas waterproofing or even adhering to promised energy efficiency standards might also be included. Usually the coverage period for structural defects is 10 years after completion.

One important aspect of home and house warranties are inspections. And this is different everywhere too! Inspections are an important tool for risk mitigation. Independent third parties will assess the construction and the risk associated with it, which is a great risk management tool to bridge the information gap between the builder and the future owner.

I think the re/insurance industry plays an important role in protecting homeowners; we are used to long-tail risks. Warranties lead to better construction quality, which makes citizens more resilient. What do you think?

Category: Other

Location: Tokyo, Japan

1 Comment

Alicia Montoya - 20 Nov 2017, 7:14 p.m.

As a consumer, I find the list of risks I'm meant to protect against overwhelming.

So I'd prefer an integrated home solution that covered all my engineering, property and energy needs.

A transparent system enabling me to "pick and mix" levels of coverage would help build much-needed trust.

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