How many people actually have enough insurance?
ANALYSIS: A shock claim landed this week that almost half of Aucklanders did not have ‘‘home’’ insurance.
As the recovery for households inundated in storm flooding continues, those who have insurance have their insurers to help them get back on their feet. Those who don’t have insurance will have to find the money for repairs, and replacing damaged possessions themselves.
But is it possible so many Aucklanders are uninsured?
No. There are uninsured homes, and there are underinsured homes. But it’s two, or three, or four in every 100, not half.
The ‘‘nationally representative’’ survey from financial marketing website Finder’s claimed to show almost half of Auckland residents did not have ‘‘home insurance’’, compared to about 39% nationally.
It appeared to show one-in-10 people with a mortgage didn’t have ‘‘home insurance’’, either.
That would be particularly surprising, because banks insist people who borrow from them
Homeowners need house insurance
Check your sum insured
Explore raising your excess to trim premiums
keep their homes insured, otherwise they can be in default on their home loan contracts.
Tim Grafton, chief executive of the Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa – a political lobby group for insurers – said its quarterly surveys show 97% of homeowners insure their homes.
Just over 90% of car owners have car insurance, although a proportion have only third party fire and theft. And about 70% of people have contents insurance.
In 2018, Lloyds had found New Zealand had the fourth-highest level of insurance in the world.
There’s nothing like a realworld test to plumb the depths of under-insurance. After the Canterbury earthquakes of 2010 and 2011, the government of the day established the Red Zone, where homes were not allowed to be rebuilt. In 2019, the Government decided to make a combined payment of $12 million to ‘‘Quake Outcasts’’, the uninsured owners of Red Zone homes. There were just over 100 of them. There had been over 7400 homes in the Red Zone.
That equates to less than 2% of homeowners.
It could be that Finder confused the people it surveyed.
Did renters say they did not have ‘‘home’’ insurance, because truthfully, they didn’t? Their landlords had it.
Did renters answer ‘‘no’’ because they didn’t have contents insurance? Many renters, poorer people and apartment dwellers choose not to have contents insurance.
When it comes to surveying people, the questions you ask have to be precise.
Some fairly precise questions on insurance were asked by CoreLogic late last year.
What it concluded was that underinsurance was a far bigger problem than the few people who chose not to insure the homes they owned.
Many people were insuring their homes for too little, or had no idea about how to choose a ‘‘sum insured’’, which is the maximum amount their insurer has to pay out in the event of their homes being damaged, or destroyed.
When it comes to the floods in Auckland, very few homes will be total losses, and in most cases, people’s insurance will be adequate, not reaching that sum insured limit.
Presciently, CoreLogic’s country manager Simone Moors said in October: ‘‘Though the bulk of insurance claims are for less than total loss – for instance, water damage which does not destroy the home – the risk of total loss for more homeowners is growing, amplified by the increasing occurrence and intensity of weather events connected to climate change which are causing widespread damage in cities and towns, notably serious flooding.’’
As the cost-of-living crisis bites, there is pressure on households to pay the rising cost of house insurance, but experience shows in New Zealand, it is an expense homeowners know they have to stomach.
Lloyds has New Zealand pegged as the second-riskiest country in the world for natural disasters.
Those rankings are backwards-looking, but the vast majority of homeowners in New Zealand have enough experience to realise that they must have house insurance.
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