In this article we wanted to offer you some information about insuring your home, particularly given that there are still some restrictions in place following last year’s earthquake. So, we went to industry experts AMI, where we caught up with Karl Townsend for the low down!
Q: What is the most important thing for people to consider when looking for insurance to cover their new house?
A: There are two things we would strongly encourage new homebuyers to do:
- Buy as much cover as you can afford: It’s important to remember that not all insurers provide the same level of cover, so before you buy make sure you understand what kinds of damage &/or events the policy will cover you for (e.g. storm, earthquake, accidental damage), and what the insurer will pay for when you do need to make a claim (e.g. will it only cover the loss of market value, or the cost to repair the damage ‘as new’? Will the cost of staying in a motel for a few days be covered if flood waters are running through your home?)
- Underinsurance is a risk you can avoid: It costs relatively little to increase your sum insured to make sure you’re properly protected should something bad happen – depending on your circumstances, it may be just an extra $20 a year for an extra $20,000 cover. But it can cost you and your family a huge amount of unbudgeted money if you haven’t bought enough protection and can’t rebuild your home after a disaster strikes.
Q: What different types of house insurance policies are available, and who are these policies aimed at?
A: There are generally two types of cover when it comes to the “basis of settlement”. This is insurance-speak for the basis on which an insurer will settle a claim (as outlined in the policy wording):
- Replacement cover is easily the most common in New Zealand. This will, generally, cover the cost of repairing or rebuilding the home to an ‘as new’ condition (up to the specified amount of insurance you’ve bought).
- Market value cover is less common. This is a great option for people who want to make sure they get enough money to buy another home that is similar to theirs if the worst happens. For example, the market value of your home should be roughly similar to the market value of a similar home in a similar neighbourhood. It’s a much more affordable option for people who can’t necessarily afford replacement cover, or simply don’t feel they need a new house after a disaster.
On top of this though, the “scope of cover” is equally as important. In New Zealand, it’s common for insurers to provide what’s referred to as “accidental damage cover” which means any damage that happens accidentally is automatically covered unless there’s a specific exclusion to say that it’s not. An example of what would be excluded is damage caused by gradual deterioration.
These types of policies will often include other additional benefits (either automatically or as an optional extra) such as alternative accommodation (if it’s owner-occupied) or loss of rent (if it’s a rental property), limited cover for hidden gradual damage. The other type of cover is a “defined perils policy” where you’re only covered for the specific type of loss (perils) named in the policy wording, for example, storm, flood, natural disaster, burglary, fire or explosion.
Q: How would a homeowner (or potential homeowner) calculate their rebuild costs for house insurance purposes?
A: The best ways to work out your sum insured are:
- Check out our sum insured calculator on need2know.org.nz
- Ask for a Valuation for Insurance Purposes from a registered valuer or a quantity surveyor
- Get some advice from a builder who understands the cost to build homes like yours in your area.
It’s good to bear in mind that the market value (price you might get if you sold your home on the open market) and capital value (the number your local council calculates every three years) very rarely have any bearing on the rebuilding cost of your home. So if you have a replacement policy, don’t use these figures to calculate your sum insured.
Q: What is the current situation on home insurance (in Marlborough) following the Kaikoura earthquake last year? Are there any embargos or restrictions still in place?
A: Yes, restrictions are still in place across the insurance industry – this is common practice after a major event. If needed, you can call your insurer to see what restrictions, if any, they have in place.
Q: If there are, how can people get protection for their new home?
A: Our initial advice is to contact your own insurer first – if they already insure the house for the vendor, they’ll probably agree to insure it for the new owner too. If you don’t have any luck, find out who the house is insured with under the owner/seller and approach that insurer.
Q: How does the EQC insurance work alongside private insurance companies?
A: EQC currently covers policyholders up to $115,000 worth of damage to their home, and the first $20,000 for loss of contents. A claim is considered ‘over cap’ when the cost to repair the damage exceeds $115,000; ‘under cap’ is when the the value of damage falls under this threshold. For the Kaikōura Earthquake, EQC has an agreement in place with the industry which means private insurers will manage both the under and over cap claims for their customers, so regardless of the cost to repair the damage, customers are working with their private insurer – one contact point – on both under and over cap claims.
Private insurers have been arranging the assessment of earthquake damage to customers’ properties and, once assessed and costed, will cash settle the claim directly with their customers. The private insurer will then recover any under cap costs back directly from EQC.
Q: Do people need to consider any restrictions if they’re building a new home or improving an old home (thereby wanting to take their sum insured higher)?
A: We would encourage people to talk to their insurer before undertaking any major renovations or new building projects. Each insurer has their own underwriting criteria so there’s no single answer.
Q: Where can people go to for help and advice if they find they are having trouble getting cover?
A: The industry body, the Insurance Council of New Zealand, works with stakeholders and consumers to help people understand the risks they face, and provides resources for those who may want to know more about getting cover.
Q: How are property owners of houses that were damaged in last year’s earthquake affected if they wish to sell that house?
A: We would always encourage homeowners to give your insurer a call before putting your home on the market, as everyone’s circumstances are different.
Q: Is there anything special that purchasers need to consider when buying a home in an area that was affected by the earthquake?
- Always get an independent inspection completed by a registered professional (e.g. Licensed Building Practitioner) to understand exactly where you stand. If your home has pre-existing damage but the seller did not lodge a claim, you won’t be able to lodge a claim on their behalf retrospectively.
- Ask the vendor specifically if the home had any earthquake damage from the November 2016 earthquake, and whether or not a claim was lodged for that damage. It’s possible that a claim was cash settled with the seller, but the damage was not repaired effectively prior to selling it, so make sure you have all the facts up-front.
- If there is an open claim for damage, the purchaser won’t necessarily be entitled to the same claim costs as the seller even if it’s assigned to you when you purchase the home, so it really does pay to get your own independent legal advice. You may only be entitled to the loss of market value attributable to the unrepaired damage, and that’s not likely to be the same as the cost to repair the damage.