IAG sums up change to policies

THERE WILL be some ‘‘tolerance’’ for homeowners to get the rebuild value of their homes wrong under the ‘‘suminsured’’ house insurance policies that will replace the open-ended policies that have traditionally dominated the New Zealand market.

Last week, Sunday Star-Times revealed how the shift to suminsured house insurance would sweep across the whole insurance industry, driven by reinsurers seeking more certainty over their exposure in New Zealand in the event of natural disasters such as the Canterbury earthquakes.

Traditional house insurance provides open-ended cover to rebuild policyholders’ homes, whatever the cost, but all New Zealand insurers will this month and throughout next year move to sum-insured policies.

On these policies, the maximum that can be paid out is the sum insured. It is up to the homeowner, with help from online calculators being created by insurers, to decide how much they should insure their homes for.

However, the calculators will come with legal disclaimers that the insurer is not responsible for their accuracy.

IAG chief executive Jackie Johnson said policies would contain some tolerance for insurers to pay out more than the sum insured, if owners got the rebuild price a little wrong.

Overseas, the tolerance tended to be in the 5 per cent to 10 per cent range, but the details of the planned sum-insured policies of IAG-owned companies – State, NZI and AMI – were yet to be finalised, Johnson said.

Policies would be inflationlinked, so the sum insured would rise to reduce the chance of people letting their insurance cover fall behind rising building costs, she said.

Overseas experience was that people did get adequate cover from sum-insured policies.

‘‘Unfortunately, there have been a lot of natural disasters in recent years in Australia, and when I was CEO of a division when we were hit by Cyclone Larry there was very little underinsurance,’’ she said.

Though there is a big job to do to educate the New Zealand public, sum-insured policies are standard around the world.

The reality was international reinsurers were never going to allow New Zealand, with its high risk of earthquakes, to continue with open-ended policies, Johnson said.