Number of Victorians awaiting building insurance payout has ballooned since January

Building giant Porter Davis Homes went into liquidation more than a year ago, affecting more than 1,700 homes. (AAP: Jono Searle)

More than 700 Victorians have waited more than a year for their claim to be resolved by the state-run insurer after their builder went bust, adding to emotional and financial pain for distressed families.

The state's ombudsman is being urged to investigate the Victorian Managed Insurance Authority's (VMIA) behaviour, following this week's ABC Stateline report that detailed allegations that the authority was forcing low and unrealistic building quotes onto desperate families.

In some cases the offer would not cover the completion of construction or a full remedy of defects.

The VMIA provides domestic building Insurance (DBI) in the event a builder is unable to finish the works — often due to insolvency. It is a statutory government body that reports to the Assistant Treasurer Danny Pearson.

A swag of builders — including Porter Davis — have folded in the past year resulting in a surge of Victorians making claims with the VMIA.

New data from Freedom of Information documents obtained by the state opposition also shows that the number of outstanding claims jumped to 1,682 in April, up from 1,359 in January.

Some claimants have also told the ABC that the VMIA has been adversarial, making the pain of losing a builder even worse.

"You can't image how bad and mismanaged, and untrustworthy, the VMIA is,'' Porter Davis customer Suzi Ralph said.

VMIA blames 'complex' claims for delays

The VMIA said there are 2,158 claims currently unresolved, including 661 cases where an offer has been made but not yet excepted.

A third of the outstanding claims were lodged more than a year ago, with another 27 per cent lodged more than six months ago.

The VMIA said the lengthy delays were usually due to complex cases, the offer being rejected or appealed at VCAT.

"VMIA is focused on completing homes for claimants as quickly as possible to the standard they signed up for with their original builder,'' a VMIA spokesperson said.

"Where claims are more complex, it's important to be thorough so that claimants — and any future owners – have a safe and secure home that lasts."

The state opposition is demanding an investigation into the state-run insurer.

"Families are describing this as a double catastrophe," Shadow Home Ownership Minister Evan Mulholland said.

"Firstly, by the collapse of their builder and then again by the struggle to access compensation from the government.''

Customers left to pay for defects out of their own pockets

When Porter Davis went under Ms Ralph was left with an unfinished home riddled with defects.

But when she made a claim with the VMIA, she says the insurer provided an unrealistic quote to finish the job — that quote even included a picture of the wrong house.

Ms Ralph said the process was so bad she took on finishing the works herself by hiring tradesmen directly to avoid bleeding more money.

The soaring cost of building materials and labour means delays to payouts can result in additional out-of-pocket expenses.

"I'm still fighting to get the defects all fixed and paid for,'' she said.

"I feel that they are dragging out the process to pay me less money."

Opposition to push ombudsman to act

Ms Ralph, and others in similar situations, want greater scrutiny of the VMIA.

This week the state opposition will try and use parliament's upper house to force the ombudsman to investigate the behaviour of the VMIA.

A motion to be debated this week "calls on the ombudsman to investigate VMIA … for its failure to appropriately manage DBI claims and settle outstanding insurance claims made by hardworking Victorians".

Mr Mulholland said the use of non-disparagement agreements and the practice of underquoting needed to be investigated by the watchdog.

"It's not good enough,'' Mr Mulholland said.

"The government is trying to silence these victims."

A Victorian government spokesperson said it expected the VMIA to processes claims as quickly as possible, and that it should continue "to prioritise getting homeowners into their homes as quickly as possible using builders that can be trusted to deliver."