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About two thirds of New Zealand homeowners haven't bothered to change their insurance policies after insurers changed to 'sum insured' policies last year, suggesting many don't have the cover to completely rebuild their properties.
The Insurance Council of New Zealand said informal industry reports suggest 60 percent to 70 percent of kiwi customers have opted to accept default cover, which is based on the average per-metre cost to rebuild a 'standard house'.
The new policies don't distinguish between a renovated villa, an ex-state house or one designed by an architect. They also don't take into account building materials or add-ons such as decks, and as a result many policyholders don't have enough cover to completely rebuild their existing home.
The change was forced on insurance companies by reinsurers who faced multi-billion dollar costs after a spate of global disasters ranging from the Christchurch earthquakes to the Japanese tsunamis and floods in Queensland and Southeast Asia. Sum insured puts a cap on rebuilding costs, giving reinsurers more certainty they can cover losses.
"We're of course concerned about New Zealanders being under insured but it's also about customers understanding their individual circumstances and insuring to meet their personal future needs," said Samson Samasoni, an Insurance Council spokesman.
AA Insurance, a joint venture between the New Zealand Automobile Association and Vero New Zealand, said 75 percent of its homeowner customers hadn't responded to the sum insured changes introduced last year.
"The default figure may not be enough to rebuild or repair your home to the same standard it is now," said Suzanne Wolton, head of customer relations at AA Insurance. "It's possible that the vast majority haven't calculated a figure, or contacted a building expert to calculate a figure, but have simply put it into the too-hard-basket and consider the default figure to be 'good enough'."
Customers who would want to return their home to its current status need to provide their insurers with a rebuild amount, and pay the increased premium to match. AA Insurance said every $100,000 of extra cover would add, on average, about $40 to annual premiums.
Increased insurance premiums reflected the cost of reinsurance, the Insurance Council says. In a typical house policy with a premium of $1,000, about 40 percent would be the insurance company, 24 percent reinsurance, with the remaining 36 percent made up of EQC and government levies and tax.