Andrew
Unless I am mistaken, then regardless of who the builder is insured with, I think you should go through them as they are, after all, the policyholder (you're a 3rd party beneficiary).
To the best of my knowledge it is only in limited circumstances in which a beneficiary can go straight to the insurer (one of those circumstances is that the insured is no longer alive).
Why would the builder deny liabilty and risk a law suit?
That's why people have insurance - to save them from paying.
EDIT
What I wrote above is true, however I just found out that Builders Warranty Insurance in Australia is now used on a "last resort" basis.
The first, and most plausible remedy, is for the offending builder to rectify the problem (ie. fix it).
END EDIT
MB