In my post on the 10th of August (here) the observation was made that nearly half the AA Insurance rebuilds had “been cashed settled which, on the face of it, suggests a full replacement policy isn’t all it was advertised to be.”
AA Insurance have been in touch with additional information from their Corporate Affairs office. Here is their response in full:
I have recently read your post titled “AA Insurance progress update” and would like to offer you some background information about how we are settling our Christchurch home claims.
AA Insurance has a full replacement HomeCover Policy. If our customer is a rebuild, regardless of whether our customers choose to stay in our rebuild programme and rebuild or their current site, or take a cash settlement to rebuild on another site, the amount they receive is based on the full replacement cost. The same principal is applied if our customer’s home is a repair.
We will provide our customers with the information for both options and they are able to choose what’s best for their individual situation. This cost is agreed upon by the customer and they are recommended to seek legal advice. Of the 326 customers that have taken a cash settlement for their home claim, most of them have properties in the red zone.
This additional information certainly provides a much clearer and more accurate picture of what has happened. It also helps crystalize the problem faced by those who were rebuilds in the Red Zone.
A significant issue still remains. Every insurer is a retailer offering a packaged deal. When a property owner buys house insurance from an insurer, any insurer, it is a one stop purchase. Sign the contract and you are covered for a whole range of listed damages. When you pay the insurance premium, part of the money is for fire services and EQC cover.
From a buyer’s point of view the one policy payment covers everything, and it seems a reasonable expectation that everything is covered to the same extent i.e. land as well as buildings. If the house burns down, not only have you made a contribution to the costs of the fire brigade, you also get a replacement house. If there is an earthquake (or flood, or storm), you have paid for EQC who fix your land (or give you replacement land) and the house is repaired or replaced by EQC and the insurer.
Herein lies the problem. Once again EQC and the government represent the point at which problems arise. Under “normal” circumstances EQC would have sorted the issues with your piece of land by repairing or replacing it – this is EQC’s obligation under the EQ Act and the point where legally valid expectations are created.
This didn’t happen. Instead the government made land offers via CERA , offers which were insufficient for claimants to be reinstated to a situation substantially the same as they were before the earthquakes happened. Anyone could have compared rateable land values and market values to see there was a significant gap. As CERA is well aware, a number of those who were, and some still are, stuck in the Red Zones found there was an insurmountable gap between what the government was offering and the market value of the sections becoming available.
So, to return to my initial point: a full replacement policy isn’t all it is advertised to be. This is not the fault any insurance company, rather the product of an assumption that EQC and successive governments would behave in accordance with legislation and the end result would be “full replacement” – a house with land. The simple seamless transaction at the selling side of policies breaks down when disaster strikes.
As the role of EQC is assessed it will be important to either reinforce or completely dispel the expectation that there will be a seamless full replacement or reinstatement of policy holders to their situation before the event occurred.