Diana Clement has written a very useful article on sum insured policies in the New Zealand Herald. The article (here), Make sure your house is valued properly, is a good read as are some of the comments. .
Sum insured – what amount should you insure your house for? What could go wrong?
As mentioned in previous posts, future house insurance policies will be based upon what YOU have assessed as being the cost of rebuilding. This isn’t just the cost of time and materials, it also includes costs relating to demolition and disposal of the rubble, surveys, local and regional council consents, legal fees, plus others that are complex (e.g. disposing of asbestos) or don’t come to mind at the moment. You also need to know what limitations or conditions insurers put on certain aspects of your property (e.g. the technical category of your foundations, retaining walls, hazardous materials). It is not going to be easy to get this right. Get it wrong and you loose in a devastating way.
Not only is it going to be a difficult exercise there is also, as highlighted in a recent item on the Australian insurancenews.com website (here), the issue of avoiding unqualified valuers. In that item NZ Property Institute CEO David Clark is quoted as saying:
“We are concerned that these so-called professionals have no training or qualifications in valuation or quantity surveying,” Property Institute CEO David Clark said.
“Worse, they may not carry professional indemnity insurance, giving you virtually no recourse in the event they let you down.”
Many thousands have experienced the incompetence of EQC’s assessors, so the warning is timely.
Adding more smoke than light to the situation, the Insurance Council of New Zealand (ICNZ) Insurance Manager John Lucas is reported as saying insurers offer online valuation calculators tailored to their policies.
“The council believes they should be fairly accurate, but often people want second opinions and we would be very concerned if homeowners were being duped by people who were not qualified,” he told insuranceNEWS.com.au.
“It can have devastating consequences if you are underinsured, and if you are overinsured you are throwing money away.”
This seems a reasonable enough comment to make, until you read the disclaimer that is associated with such on-line calculations (e.g. here):
The Cordell Online Calculator does not necessarily take into account every feature of your home, nor does it provide advice. So, if you haven’t been asked about a certain feature of your home by the calculator or you want advice, you should contact a builder, architect, valuer, quantity surveyor or other building expert to help estimate your Sum Insured.
How exactly do you reconcile “fairly accurate” with “does not necessarily take into account every feature…”? As an aside, are builders and architects the most suitable people for the job?
As far as I can tell on-line calculators don’t cater for TC foundation categories so, if this is correct, they are a waste of time for everyone in Canterbury. More importantly, if this is the case, why did ICNZ’s John Lucas say: “The council believes they (calculators) should be fairly accurate …” Surely that is confusing at best and, more probably, quite misleading.
It should be incumbent upon the ICNZ to prepare a list of what qualifications or accreditations will be accepted by its members as suitable for the purposes of their insurance policies. Failing that, each insurance company should produce a list of the categories of trades and professions they consider acceptable for the purpose of creating a sum insured figure.
AA Insurance – Sum insured for Canterbury customers – cover for retaining walls (bad news for Wellington and Auckland too?)
AA have updated their new policy information to include two questions and answers relating to retaining walls (they are basically the same question put twice) here. While the answers have significant ramifications for most Cantabrians on the hills, or with multi-level sections, the effect of extending this limited level of cover throughout the country will be massive. Many hillside properties in the main centres will lose a significant amount of their appeal and also their market value. The questions and answers are:
How can I ensure that I have enough cover for retaining walls? Currently our policy will have a $10,000 limit for the construction of all retaining walls, which means this is the most we will pay for your retaining walls to be reinstated in a future claim, regardless of your total Sum Insured. My home is in the Port Hills – how can I ensure that I have enough cover for retaining walls? Currently our policy will have a $10,000 limit for the construction of all retaining walls, which means this is the most we will pay for your retaining walls to be reinstated in a future claim, regardless of your total Sum Insured.
Sum Insured update – AA Insurance’s guidelines for Canterbury homeowners (and the rest of the country)
AA Insurance have added a whole set of Q&As to their website for Cantabrians, to assist in coming to grips with the new method of insuring houses. As AA Insurance seem to be the trendsetters for sum insured house policies, the information on their site will be good background material for those insured with other companies. Useful reading too for homeowners outside Canterbury, particularly those in earthquake or flood hazard areas.
The Q&A information applies to both those on the flat, and the hills. Significant questions arise for those on TC3 land (foundation costs), also on TC2 (foundation costs), and everyone in a damaged house. There are differing but equally significant questions regarding foundation costs and retaining walls for those on the hills (retaining wall liability to be capped at $10,000 irrespective of amount factored into the Sum Insured value). There is no indication that the liability for retaining walls is to be inflation adjusted so the sum may become worthless within a few years.
Unfortunately the answers don’t provide much practical information, but carry the on-going theme that homeowners are responsible for getting it right, and keeping it right, and the insurer takes no responsibility if the sum insured figure is incorrect.
The bottom line is every property owner wanting to get it anywhere close to right will need to pay to have a value determined for the foundations and rebuilding of their property, along with the costs of demolition and removal of the old property plus all planning, consents and permits. A great unknown is whether insurers will accept this sum should the property be damaged or destroyed, or if they will continue the current policy of creating their own valuation in an attempt to raise doubt and reduce claims.
A very important omission is information about what happens if the sum insured value is determined to be inadequate by the insurer. Will the insurer pay up to that amount, or decree that the consequence of being under-insured is that only a discounted amount of the insured sum will be available (i.e. you will be financially penalised for being under-insured, as currently can happen)?
Also omitted is any information on how the policy, the sum insured, and the associated premium, coexist with EQC cover.
For those outside Canterbury there is silence on the issue of insured sums incorporating foundation requirements. If you live somewhere such as the Hutt Valley, Blenheim, or Dunedin will TC3 level foundations have to be factored in? Land in parts of those places (and elsewhere) is just as vulnerable to earthquake damage as here in Canterbury. What restrictions will local authorities apply to rebuilds, and how can these be incorporated into sum insured totals? What about flood issues where rebuilds may require raised foundations? Who are affected, or are likely to become so? How can that be determined?
Preparing a homeowners assessment and checklist looks like a priority job for the housing people at the Ministry of Business, Innovation and Employment (MBIE). In addition, they could usefully maintain a database of local authority requirements, monitoring where foundation construction and height changes have been made. CERA’s land zone maps would be the ideal template to ensure consistent levels of information are provided.
Also needed is a prompt and thorough independent review of insurance disputes processes, from how they are first handled through to the operation and utility of the insurance Ombudsman. The Canterbury earthquakes have shown how inadequately the processes operate, despite many years of operation in a known and stable environment. Only insurers and politicians tout that the process is working, their attitude founded fundamentally upon a desire to protect the wealth of insurers and re-insurers, rather than issues of due process or natural justice. With a totally new and significantly more complex range of policies coming into effect the current processes just will not do.
The Q&A can be found on the AA Insurance website here (bottom half of the page). The page also includes information for the rest of the country. The Canterbury questions and answers are listed below.
Click the link to continue …
Sum Insured for Canterbury customers
Is an online calculator right for my home?
Tools such as the Cordell Online Calculator only provide estimates of typical or standard building replacement costs. If your home has anything about it that’s not typical or standard this could suggest you need to contact a builder, architect, quantity surveyor, engineer, valuer or other building expert to consider the specifics of your home. The actual rebuild costs will depend upon the specifics of your home.
It’s worth noting that online calculators such as Cordell do not take into account all of the features of a home – only the features and information that it asks you, the customer, to input. So, if there is a feature of your home that hasn’t been asked about this may be an indication that the online calculator may not be the right tool for estimating the cost of rebuilding your home.
The Cordell Online Calculator also does not take into account additional foundation requirements for technical categories or land issues. If you live in an area where the technical categories apply, or which has other land issues, an online calculator is unlikely to be right for you.
Do I work out my Sum Insured based on my house’s currently damaged state, or for what it will be after the repairs/rebuild?
It depends on your circumstances. There are a number different things you need to take into account in deciding what your Sum Insured should be prior to your home being reinstated, for example, the length of time until your home is likely to be reinstated, the amount of damage, and whether it needs to be completely rebuilt.
If you don’t select a Sum Insured that is based on the cost of rebuilding your entire home then it is important that you update your Sum Insured after the completion of your reinstatement.
Do I have to renew to Sum Insured – can’t it wait till my home is rebuilt?
With renewals from 1 July 2013 all home insurance will be moving to Sum Insured. This is because there is a reinsurance requirement that by 30 June 2014 all our home polices be insured based on a Sum Insured.
What will happen to my current claim once I change to Sum Insured?
Changing to Sum Insured does not impact any current claims, as these will be settled based on the policy that was in place at the time of the claim. If an event happens after you’ve changed to Sum Insured, then your Sum Insured will be the maximum amount AA Insurance will pay for the reinstatement of damage caused by the new event.
If I over-insure my home what amount will you pay me if the home is a total loss?
If you over-insure your home, we will only repair or rebuild your home to the same quality and specifications as it is now, even though the cost of this is less than your Sum Insured.
It’s therefore important that you spend time considering the Sum Insured that is right for your home and don’t deliberately over-insure without understanding the implications.
How can I ensure that I have enough cover for retaining walls?
Currently our policy will have a $10,000 limit for the construction of all retaining walls, which means this is the most we will pay for your retaining walls to be reinstated in a future claim, regardless of your total Sum Insured.
My home is a rebuild – could I use the estimated rebuild figure as my Sum Insured?
The estimated rebuild figure that you have may not include all of the costs that need to be incurred to rebuild your home, such as the cost of demolition and debris removal, and replacing outbuildings and other site improvements that might not have been included in the scope of works.
You will need to review the estimated rebuild figure and establish whether it covers all of the costs of rebuilding your entire home and whether the costs have increased as a result of inflation. You may want to get the help of a builder, architect, or quantity surveyor to help you determine this.
My home is a rebuild – should I include an amount for temporary accommodation, because if there is another event I will need temporary accommodation?
We’ve taken care of this for you, should you need this as part of a future claim. Temporary accommodation, up to the limits of your policy, is included on top of the Sum Insured figure.
My home needs major repairs – as my home is partially damaged, and the rest is therefore still covered by insurance, how much should I insure for?
It depends on your circumstances. There are a number different things you need to take into account in deciding what your Sum Insured should be prior to your home being reinstated, for example, the length of time until your home is likely to be reinstated and the amount of damage.
If you don’t select a Sum Insured that is based on the cost of rebuilding your entire home then it is important you update your Sum Insured after the completion of your reinstatement.
It’s also important that you continue to maintain your home insurance for your house, because it means you will be covered for future damage, legal liability, as well as any available EQC cover.
My home needs major repairs and is covered with contract works insurance while being repaired, so do I need to move onto a Sum Insured policy mid-construction?
Beginning with renewals from 1 July 2013 all of AA Insurance’s home insurance will be moving from a square metre basis to a Sum Insured, regardless of whether your home is under repair and covered by contract works insurance. This is because there is a reinsurance requirement that by 30 June 2014 all home polices be insured based on a Sum Insured.
It’s important to know that your contract works insurance is a separate policy and so will not be altered by your home insurance moving to a Sum Insured. The contract works policy only covers the parts of your home that are in the process of being repaired. Your HomeCover policy covers the rest of your home so it’s important that you continue to maintain your home insurance because it means you will be covered for future damage, legal liability, as well as any available EQC cover.
My home needs major repairs – will I continue to get my premium discount?
You will still receive a discount on your premium as recognition that your home is yet to be reinstated. This discount will continue to apply until we’ve reinstated your home.
My land category is TC3 – how would I allow for the additional costs for foundations? I have no clue as to the amount of the foundations.
It’s important the estimated rebuild cost for your home takes into account the cost of your foundations.
Online calculators, such as the Cordell Online Calculator, do not take into account additional foundation requirements for technical categories or other land issues, nor do they take into account every possible feature or characteristic of a home and property – only the features, characteristics, and information that it asks you, the customer, to input. So, if there is a feature or characteristic of your home that hasn’t been asked about your home the calculator may not be right for you.
TC3 foundations can vary greatly, and while typical costs can be anything from $30,000 to $100,000, they can also be above or below this range. You should contact an engineer for an accurate cost for the foundations of your home.
My home is on TC2 land – how would I allow for the additional costs for foundations? I have no clue as to the amount of the foundations?
It’s important the estimated rebuild cost for your home takes into account the cost of your foundations.
Online calculators, such as the Cordell Online Calculator, do not take into account additional foundation requirements for technical categories or other land issues, nor do they take into account every possible feature or characteristic of a home and property – only the features, characteristics, and information that it asks you, the customer, to input. So, if there is a feature or characteristic of your home that hasn’t been asked about then an online calculator may not be right for your home.
TC2 foundations can vary greatly, and while typical costs can be up to $40,000, they can also be above or below this amount. You should contact an engineer for an accurate cost for the foundations of your home.
My home is on TC2 land – I am not confident that I won’t need TC3 foundations and could only find this out from a geotechnical report. I have no damage. Should I allow for TC3 foundations and how much should this be? How can I find out?
It’s important you have a Sum Insured for your home that includes all costs that will be incurred in rebuilding your home.
Online calculators, such as the Cordell Online Calculator, do not take into account requirements for technical categories or other land issues, nor do they take into account every possible feature of a home – only the features and information that it asks you, the customer, to input. So, if there is a feature of your home that hasn’t been asked about then an online calculator may not be right for your home.
Costs for foundations can vary greatly. You should contact an engineer for an accurate cost for the foundations of your home.
My home is in the Port Hills – how would I allow for the additional costs for foundations that I will need, as I have no clue as to the amount of the foundations?
It’s important the estimated rebuild cost for your home takes into account the cost of your foundations and other characteristics.
Online calculators, such as the Cordell Online Calculator, do not take into account requirements for technical categories or other land issues, nor do they take into account every possible feature of a home – only the features and information that it asks you, the customer, to input. So, if there is a feature of your home that hasn’t been asked about then an online calculator may not be right for your home.
Costs for Port Hills’ foundations can be significant. You should contact an engineer for an accurate cost for the foundations of your home.
My home is in the Port Hills – how can I ensure that I have enough cover for retaining walls?
Currently our policy will have a $10,000 limit for the construction of all retaining walls, which means this is the most we will pay for your retaining walls to be reinstated in a future claim, regardless of your total Sum Insured.
My home is in the Port Hills – who can give me an accurate estimate for a robust foundation solution to replace my home?
Costs for foundations can vary greatly. You should contact an engineer for an accurate cost for the foundations of your home.