Insurance aftershock warning
Homeowners throughout New Zealand must learn from the plight of underinsured Kaikoura earthquake victims, the Insurance and Financial Services Ombudsman has warned.
‘‘Some homeowners who suffered damage from the November earthquakes are under even more stress as they discover their insurance won’t cover the rebuild costs,’’ Ombudsman Karen Stevens said.
‘‘Finding you are underinsured is very traumatic. It is timely to remind everyone to make sure you have enough cover.’’
There have been plenty of warnings that a significant proportion of homeowners were underinsured after the likes of Tower, State, NZI, AMI and Vero switched from selling total replacement policies to sum-insured policies following the 2010 and 2011 Canterbury earthquakes.
People buying most house insurance policies have to nominate a sum insured, which is the maximum their insurer has to pay towards the cost of rebuilding their homes.
If a homeowner elects a sum that is too low, in the event of their home’s destruction in a natural disaster, they would face either having to build a smaller home or pay the shortfall out of their own pocket.
Insurers made the switch to sum insured policies when claims in Christchurch showed their experts had underestimated their total potential liabilities in the city
The shift to sum insured moved the job of estimating rebuild costs onto homeowners, most of whom are amateurs when it comes to understanding rebuild costs.
The insurers provide online calculators (which carry legal liability disclaimers) to help homeowners estimate the sum they should insure their homes for.
In August last year, Treasury warned that up to 85 per cent of homes could be underinsured by an average of 28 per cent of the rebuild cost of their homes.
‘‘Applying those figures across the whole country produced an estimate of underinsurance across New Zealand of up to $184 billion,’’ Treasury said.
In Australia, a series of natural disasters over the past decade has revealed repeated underinsurance as a result of people nominating inadequate rebuild estimates.
Stevens said: ‘‘The big question you need to get right is whether the ‘sum insured’ amount is enough to rebuild your home in the event of a disaster.
‘‘It’s really important to understand what sum insured means. The sum-insured amount is not the current value of your house, but the total cost of rebuilding it.’’
She recommended people sought advice about what the total rebuild cost might be.
Earlier this week Fairfax Media reported Huruni District Council recovery manager Paul Wylie’s claims that homeowners in Waiau were facing significant shortfalls from the November earthquakes.
‘‘It’s between the owners and their insurance companies and EQC, but anecdotally this is what we understand is emerging,’’ Wylie said.
Insurers are beginning to roll out a new generation of online smart sum-insured calculators to reduce the rate of underinsurance.
Unlike the old calculators, the new Cordell SumSure calculators mine information from property databases to reduce the chance of people unwittingly underinsuring.
Richard Deakin from CoreLogic, which is behind the calculator, said: ‘‘As for the rest, the reality is we have got a significant degree of engagement across the insurance sector, but the priority has been responding to the Kaikoura quake.
‘‘But it has spurred the sector to look at ways of helping homeowners get the right sum insured.
‘‘We are predicting the majority of the insurers will implement it.’’
Widespread damage to homes following the earthquakes centred on Kaikoura will trigger thousands of insurance claims. In some cases, homeowners will find they are underinsured.