Significant changes have recently been made in the New Zealand residential insurance market primarily due to the Christchurch earthquakes.
Prior to the Canterbury earthquakes most insurance companies provided replacement cover on residential properties on an open ended basis. “Like for like”, full replacement irrespective of the cost or the level of premium. Following the earthquakes, to limit their exposure reinsurers or the underwriters of New Zealand insurance companies are requiring insurers to provide cover based on a pre-determined “sum insured”.
What does this mean to the residential property owner?
It means that for new polices or on renewal of your existing insurance on your home or residential investment property you are now required to provide to the insurance company or your insurance broker a nominated replacement sum for which your property (improvements excluding the land) will be insured. It is this nominated “sum insured “, no more, which will set the upper limit of the insurers liability in the event of a loss. If an owner selects not to nominate a sum, typically policies are defaulting to a nominated sum of $2000 per m² of floor area inclusive of all fees, demolition, escalation, and GST. Unfortunately in most parts of New Zealand for most homes this will not be sufficient, to replace your home and you will be under insured.
The difficulty for the owner is to quantify the cost of replacing the home, and the associated other improvements (drives, paths, decks, balconies, fencing, retaining walls, swimming pools etc.) There are many factors to consider including the floor area, materials, quality, design, land stability and effect on foundation design, locational impact, demolition costs, planning and design fees, Local Authority charges and anticipated cost escalation not only during the annual insurance period, but also during the planning and lead in time for reconstruction and during the reconstruction phase.
Insurance companies are offering free online calculators for home owners to quantify the replacement cost. These provide a generic estimate, based on non-specific inputs to limited fields, requiring the owner to be well informed on the construction, specification and floor area of the improvements which they want to insure. The calculators come with full disclosure placing all liability and risk on the owner. Alternatively the home owner can seek the services of a Registered Valuer. TelferYoung have a large team of experienced Registered Valuers throughout New Zealand who will inspect, measure and assess the replacement cost of the improvements you choose to insure inclusive of demolition, costs, fees and escalation, and provide a written report.
Residential insurance has changed. It should not be considered a “feel good” commodity. Just “having” insurance may not be adequate. Make sure you know if you have purchased or have been converted to a sum insured policy, and make sure you have sufficient cover. If your policy provides a nominated cover of $2000 m², or if your replacement cost was established some time ago you will most probably be underinsured.