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One year on, about two thirds of NZ homes may be under insured, say insurers

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.


More by Suze Metherell

Comments and questions

Chickens coming home to roost for the poor hard done by insurance industry. No more conferences or junkets when the expected premium lift hasn't occurred how sad, which is strange seeing as they have tried to scare the pants off everyone via tv advertising and other media as usual. Maybe joe kiwi knows insurance companies are trying to sell an umbrella that wont work when it rains.

Most people probably do not understand the move, feel it is motivated by a goal of insurers to make us all pay for the earthquakes, and really have no idea of the actual costs of a rebuild. Nothing that I saw from the insurance industry made any effort to help people really understand. It all looked suspiciously like price-fixing by another name at the time.

Which government agency gave credibility to what the insurance industry did? Are we really to believe it was pressure from the overseas reinsurers? Perhaps I missed it, but all I saw was the vacuous TV ads - that didn't really explain what was going on at all.

Completely agree; it looks like, and smells like, price fixing by the insurance companies getting together as a cartel to reduce their cover and increase their premiums.

There was no adequate explanation for what was happening; I truly do not believe that there is no reinsurer out there who is willing, at any price, to continue with the previous cover. Yes, it may be more expensive but at least we would have a choice. In the absence of this choice the only reasonable explanation is that there has been a market failure; and with many "competitors" in the market the only way for there to be a market failure is for the "competitors" to have acted in concert to stitch up the customers.

TV was used successfully as a means to enhance awareness - ads pointed to a website providing more details to help with an understanding of 1. why the change, and 2. what to do about the change ( Encouragingly, website use has been high. But don't think that was all that was done. IAG has engaged with community organisations such as SeniorNet (helping the elderly), Citizens' Advice Bureaux, and the Federation of Family Budgeting Services. IAG direct insurance brands State and AMI have run their own community meetings. This is acknowledged as a massive change, and has been treated as such with considerable investment in communications.

I have zero expertise in building houses, or costing those house builds. Insurance companies have a large amount of knowledge when it comes to how much it would cost to build a house, as they will have the experience of paying the bills. It therefore makes no sense to me to try and work out what the cost will be; as the cost given by my insurance company must be a more accurate figure than anything that I can produce myself.

Yes, I could pay $1000 every year for somebody to tell me how much it will cost to rebuild my house - but anything more than $100 is unaffordable given the risks involved.

And all basically because the insurance industry, with all their complex actuarial models and highly paid management, failed to accurately understand the cost of the coverage they were providing. They got caught with their pants down.

Well I am insured as per the Insurance calculator which suggests the home - a lovely waterfront property that I purchased for 700K should be insured for replacement rebuild cost not including the land at $1 Mill. This despite a brand new high spec home - just up the road - non waterfront - selling for 650K I assume for a profit for the builder.

I had to take the calculator value else I may have had a future problem but I suggest the current calculator is over valuing the cost of rebuild by something between 50 and 100%. Of course there were registered valuer's lining up to help for a fee. But I think we need some competing online valuation applications.

I suggest for each person now under insured we have another who is well over insured. - Bit of a racket going on and of course you never know the outcome with insurance until you ask them to pay out.

People!! the biggest expenses on a house re build is.. 1:- the demolition and removal to the dump of the ruined house.
2:- the re build has to be done to the 2014 building code, not the era of when the house was built.
3:- Council consent fees Architect costs etc etc.
so there is over $100,000 before a nail has been knocked into a piece of wood.
Then you can add truck loads of dollars, if you are on a sloping site, as horrific Engineering cost will be needed, and or massive retaing walls may be required, and remember they need to be at 2014 code standards, it is very easy to be blasé about your insurance and say that is enough until something happens then it is too late.
I would suggest that as an insurance minimum, you would need a cash payout, to at least buy a similar second hand house to suit your needs, anything less and you are screwing yourself, eg to rebuild your current house, may require cover of $700,000 but your house may only have a value of $350,000 and you could more than likely buy a similar house for $400,000
Be warned NZ's, our current "Govt" valuations are not within a bulls roar of actual value.
My current house that I live in, I rejected the "Govt" valuation, it was revalued and increased $10,000 so it is now valued at $1 per square meter!!!!! but the little 3 bedroom oblong box 5 houses down the road is valued at $35 a square meter...go figure!! so what ever you do, don't use your "Govt" valuation as a guide, it is purely a guess, and dominated by factors like mortgagee sales, matrimonial devolvement's and failed property investors going broke, the "Govt" valuations have nothing to do with the actual!! value of a house.
Another factor is land values, the "Govt" valuation of an existing House section, is likely to be say $150,000 but a new section in a new subdivision 200 meters away will probably cost $300,000+
And they call themselves valuer's it is just a joke!!!!
What ever you do don't under insure your house, or the Insurance company could contest, that you are under taking a certain percentage of the risk yourself, and your payout could!!?? be dramatically affected??!! so be careful, and they have gone to huge expense in warning everyone.
I've had over 40 yrs in the construction industry and am retired, so no interest in the insurance industry.

The issue in my mind is that having a correct value on your property does not mean insurers in the event of a major claim will accept that value. AMI used to and perhaps still do offer an agreed value for cars so if the vehicle was written off the payout was not a dispute you got a cheque for the insured value.Perhaps this should be extended to property excepting the obvious abuse of deliberately over insuring .Looking at the devious ways most insurers have treated their policyholders it is no surprise they are very sceptical of the insurance industry and I have heard that Mr Samasoni has an interesting history in the middle east that may relate to his suitability of his employment in his current position.