In­surance af­ter­shock warn­ing

The Press - - Business - ROB STOCK

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.’’

PHOTO: SCOTT HAM­MOND/FAIR­FAX NZ

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.

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