Insurance too much for too little
Winston Churchill reportedly said that if he had his way he would write the word “insure” on the door of every cottage. Accepting that insurance is a prerequisite for security in modern times, it’s clear from our series this week that it is costing too many too much for too little in return. Consumer NZ research shows the cost of home insurance has risen by 144 per cent over the past decade. Meanwhile, the Global Property Guide estimates New Zealand house values have risen 70.5 per cent over the same period.
But insurance in New Zealand has been changed by forces beyond anyone’s control.
House cover changed after Christchurch was torn asunder by the earthquakes of September 2010 and February 2011.
As a result, New Zealanders are less likely to get full house insurance, having to settle instead for “sum insured”. Prior to Christchurch, a house which burned to the ground could be replaced at the full cost necessary. Now, policyholders are expected to estimate what their house would cost to replace and insure it for that.
Increasingly, parts of New Zealand are being moved by insurers into “risk-based pricing”, such as Wellington and the eastern coastline of the North Island, where a major earthquake is considered overdue. In these areas, policyholders are expected to pay higher premiums because of the potential danger. Previously, such territorial risks, which also include flood risks south of Dunedin, were spread across the New Zealand market.
Risk-based pricing is expected to spread further as recognition of the impacts of climate change bed in, and the effects become more frequent.
Undoubtedly, the insurance sector faces substantial challenges, some of its own doing. During a speech to the Insurance Council in November last year, Reserve Bank Governor Adrian Orr said companies needed to review and improve their conduct and culture — and his agency would be watching.
“The public is demanding that both insurers and regulators play their part in providing greater confidence in the insurance sector. The Reserve Bank will prioritise insurance policy and supervision reviews in 2020 and beyond, and enable individuals and firms to actively participate in shaping the industry’s future,” Orr said.
Likewise, Consumer NZ has consistently found significant problems in the insurance market, including a high level of complaints and low levels of trust.
Health insurance costs are also rising, and will continue to do so as the population ages. Insurers are being expected to cover for more expensive procedures as they become available, as well as medications.
The onus is on all of us to be better informed about our insurance outlay and entitlements. From our series this week, two things have become clearer.
Do not ‘set and forget’ your insurance cover. As your circumstances change, so should your insurance. Perhaps ‘review your insurance’ should be writ large on the door of every house.
First, people tend to wait too long to sign up for personal risk insurance. It is much harder, and more expensive, to sign up for health insurance once a condition has manifested and turns up in a check-up at the GP.
The other important lesson is, do not keep unnecessary cover for too long. Having income or mortgage insurance as your home nears freehold or when you no longer have dependents could be throwing money away. Do not “set and forget” your insurance cover. As your circumstances change, so should your insurance.
Perhaps “review your insurance” should be writ large on the door of every house.