Replacement or fixed value insurance?

May 27th, 2014 at 12:00 pm by David Farrar

The Dom Post editorial noted:

Home used to mean “total replacement”. If your house got blown over, you’d get a new one, as close as possible to the original, no matter the cost.

In the wake of the Christchurch earthquakes, with their mammoth reconstruction bill, insurers have moved to put a cap on how much they will pay out homeowners. That’s defensible – they, and their international reinsurers, have been badly burned by the quakes, and they need a better idea of their liabilities.

But it’s how they’ve handled the change that’s the problem. The onus has fallen on homeowners to determine exactly how much cover they need. Clearly that’s a specialist task that most people can’t manage.

Yet, if they get it wrong, they could be in real trouble, caught hundreds of thousands of dollars short of rebuilding the house they once owned.

To be fair, insurance companies do send out a rough suggestion for a figure. But what’s most alarming is that these “default sums” are consistently too low, at least according to valuers and quantity surveyors.

Putting aside what level the fixed value is, I think that may be the way of the future.

We’ve seen with Christchurch that total replacement is a recipe for years of delays, arguments and dissatisfaction.

The benefit of fixed value is if your place gets totalled, then bang you just get a cheque for the value insured, and all sorted in hopefully a few weeks.

The insurance companies needed to put more work into this – less television advertising and more accurate calculations to help people set their cap right. Most people aren’t inclined to pay for a professional valuation, but they will still be devastated if they can only rebuild themselves half a house.

Some industry figures suggest that people, especially older people in large houses, might deliberately under-insure themselves, and accept a smaller house if disaster strikes.

Or a house in a different suburb.

 

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39 Responses to “Replacement or fixed value insurance?”

  1. All_on_Red (1,584 comments) says:

    Cue lots of work for Valuers providing reports on replacement values. They did my Mums house the other day.

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  2. BeaB (2,125 comments) says:

    I may not have gone into this deeply enough and when the Waikato is hit by an earthquake, tsunami, volcanic eruption, flood, locusts or frogs I may regret it but I used the current cost of building a house this size and added $100,000 as the extra annual premium cost was around $40. That should cover replacement of most of what I have now. Cross fingers.

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  3. Nick R (507 comments) says:

    There is no guarantee for a homeowner that an insurer will pay out the sum assured on a home policy after a disaster. All the sum assured does is put a cap on the insurer’s obligation. They will still try to get out for the least amount they can – if they can pay out less than the full amount, they will. And bearing in mind the ongoing scope for SNAFUs between insurers and EQC, the prospects of quick payouts in a disaster (as opposed to a claim affecting just a single property, like a fire) are pretty low.

    Personally, I find it less irritating to think of insurance as a property tax rather than a service one purchases willingly. If you get anything back on it, that’s almost a bonus. No reasonable person would expect help from their insurance company after the Christchurch fiasco. The lesson there is that when the going gets tough, the insurers take the phones off the hook, head for their bunkers and wait for the Government to sort everything out. That’s what will happen in Wellington too, only now there will be an added problem because so much of the population will probably be under-insured.

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  4. burt (8,275 comments) says:

    I think you guys have forgotten how this works in the real world.

    The insurance companies undercut their competition and then fold in trouble times – the government pick up the tab – even for people who didn’t have insurance.

    Why oh why would anyone pay for insurance when the government is too scared not to pay through fear they might lose an election if they don’t use other peoples money propping up people who didn’t want to use their own money for insurance ?

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  5. mikenmild (11,247 comments) says:

    Why would anyone deliberately under-insure?

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  6. rouppe (971 comments) says:

    Problem with this is that if your house alone is totaled, then the replacement cost might be accurate. However is there si a disaster, we have seen that the materials cost shoots up, and suddenly the cover isn’t enough.

    So do you insure for a localised disaster (fire) or a regional disaster (earthquake)

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  7. hj (7,033 comments) says:

    An Indonesian man said that after the big earthquakes the Chinese insurers just defaulted (took off)?

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  8. Nick R (507 comments) says:

    @ mikenmild – to save money, of course. Less cover equals lower premiums. Opting out of insurance entirely sounds good. But if you have a mortgage, it isn’t an option.

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  9. Colville (2,272 comments) says:

    mikeenmild

    Same reason as some self insure. The risk is minimal and can afford it if shit happens.

    I just insured a house for a fixed sum, probably around half replacement cost of rebuild.

    But if it was totaled I would pocket the chq, get a digger in to clean up the site and sell the section. Be about $100K on the winning side of it.

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  10. mikenmild (11,247 comments) says:

    It’d be a false economy that could prove extremely costly.

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  11. Ross12 (1,432 comments) says:

    I am going through a major argument with my insurer at the moment on this ( when it is “sorted” I will change insurers). I’m not sure about all insurance companies but my one has handled the change incredibly badly. I was aware the change was coming but I expected them to send me a letter telling me how they, as a company were going to handle it and what was expected of me, the policy holder. I got nothing at all.
    We would normally get an invoice for our house and one for our contents a month before the expiry date of the current insured period and then our credit card is debited ( to insure we don’t forget). This year no invoices at all — just put on the credit card with a 42% increase in the house insurance.
    It has forced me to think hard about insurance. We live on a hill in Wellington –flooding is not likely to be a issue, if an earthquake “totalled” the house then the land would probably not be able to be built on again ( at least not without a huge amount of work) and so that leaves fire. If our place was burnt down I think we would look to sell the land and move elsewhere because I think even a low rebuild insurance plus selling the land would be more than the current sales value. While this does not apply to everyone I think everyone needs to think hard and not just take consultant figure ( or the calculator figure which you see on the company’s website) and insure at that level.

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  12. Colville (2,272 comments) says:

    Nick R.
    You can underinsure if you have a mortgage, but insurance has to cover mortgage (plus a margin for cleanup and fees)

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  13. hj (7,033 comments) says:

    Too many Christchurch people got redecoration due to hairline cracks where the gib moved or a crack in the concrete drive that was merely cosmetic. Now everyone insurance is up.

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  14. Colville (2,272 comments) says:

    hj, a mate of mine got a house in Ashburton, had $22K of painting and plastering done after he moved in thanks to insurance. Probably added $50K onto what he paid for it. Its like new now. Awesome.

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  15. safesally (47 comments) says:

    Sorry to say this but Christchurch people come across greedy and dishonest every time I hear stories of insurance claims. I pay too much tax to accept that some of it is being transferred to people who failed to insure their biggest asset and others who are downright dishonest. From what I hear most of them have increased their net worth due to the earthquakes. Get over it please Christchurch.

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  16. Bill Courtney (161 comments) says:

    DPF: “The benefit of fixed value is if your place gets totalled, then bang you just get a cheque for the value insured, and all sorted in hopefully a few weeks.”

    Wrong!

    When I checked this with my insurance company they made it clear that they would still “manage the claim”. The only thing that’s different is that the maximum payout is now fixed in dollar terms. Very few people understand this, along with several other points made above.

    As someone pointed out, replacing a single house that burns down in a standalone fire will be a totally different proposition to when we all attempt to rebuild at the same time following an earthquake.

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  17. Ross12 (1,432 comments) says:

    That’s right Bill , I have heard the same. So in effect the Insurance Company is pushing the risk onto the policy holder but still wants control , when it comes to the pay out.

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  18. freethinker (691 comments) says:

    The issue with fixed value is that insurers will argue they can repair/rebuild for less even were a professional value has been established or argue under insurance and average so legislation is required to ensure the industry cannot act in such an appalling way as demonstrated in settling(not) Christchurch quake claims. A useful model is the US one were most states have a limit on settlement of a “clean” claim ie were the cause etc is not disputable – quakes and other natural events being the obvious ones and non settlement incurs an interest cost, in some states – Florida/Texas an unsettled claim after a period becomes undeniable by insurers with more punitive interest added until settlement. The reason for such draconian laws is a reflection of how badly an industry has acted as in NZ. My suggestion 30 days for claims in normal circumstances,3-6 months for catastrophes with interest at interbank rates plus 2.5% for the first year then 2% a month cumulative to assist insurers to find ways to settle claims in a timely manner. there is so much to write about I should write a book, perhaps that will be my retirement project.

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  19. Paulus (2,633 comments) says:

    If I remember correctly until about 30 years ago there was no unlimited Replacement policies – they were what is called indemnity terms (like car insurance today) – this only came about due to competition from the many Insurance companies at the time (approx. 35 Fire & General companies then – if I remember).
    Wholesale premiums paid by the New Zealand companies, to companies called Reinsurers all overseas specialists, German, Swiss, UK (Lloyds), US (Berkshire Hathaway) and Bermuda and many other smaller others, was readily available based upon the Underwriting information provided by Insurance Companies to buy this wholesale cover, to protect the solvency of the Insurance Companies in the event of a major catastrophe e.g. Christchurch.
    This data was accepted in good faith to grant wholesale cover, for a price, but Christchurch has proven that to be a myth. This information was totally and utterly incorrect as has now been proven.
    We are lucky that these Reinsurers have stood by New Zealand, for they could have been very tough in declining these policy on incorrect information. The current estimate I believe could be about $18,000,000,000 recovered from overseas Reinsurers so far. They are not benevolent organisations.
    But they have now said we will grant cover to Insurance Companies only on a number of specific conditions – particularly that this underwriting data is much more accurate – hence the decision by Insurers that each property shall have a definite maximum limit.
    Each Insurance company provides its own formula, and it is for the buyer to consider this figure.
    From what I understand they are based upon a low $ per square metre based upon what data the Insured gave as to size of house. My own was far too low, so I used the computer programme readily available and simple to use to determine a figures 40 % higher kin my case.
    They will all suggest that the buyer beware, as all buyers should be, and use this simple computer programme to give a better idea or failing that for more expensive houses ($1million up that a registered valuer should be employed ($ have heard about $400 up).
    In simple terms the Insurance Companies are under strict terms if they wish to stay in business to comply with these terms, and fail at their peril.
    It is no good implying that this is unfair nothing in life is fair. It is no good implying that Insurer be sued. They have taken all advice before taking this action, ask any Lawyer. Caveat Emptor – the terms have been laid out clearly – If you are not happy go somewhere else, and see what you get.
    Also I think that in future all transactions will be cash based as is now occurring with Insurers having nothing to do with any rebuild. It will be up to the homeowner to get rebuild costs and submit for a cash deal.

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  20. peterwn (3,277 comments) says:

    freethinker – Agreed with respect to interest. S87 of the Judicature Act 1908 (the Act has since been amended many times over the years) sets interest rate on judgments and does not allow compound interest. The current rate is 5% (last set by order in council in 2011). The legislators seem to be more concerned with usury and forget that if the rate is artificially low together with the ban on compound interest it gives an incentive for insurance companies etc to drag the chain. IMO the court should be free to set the interest in each case at a rate within the bounds of IRD’s two rates and it should be compounded.

    This rate and ban on compounding does not apply where an interest rate is set in a contract (typically a mortgage) or in ‘equity’ cases.

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  21. holysheet (402 comments) says:

    Ive got a mate down southland way. His house and section are for sale at $380,000
    The house alone is insured for replacement value of $800,000
    I said to him it would be better for hin to burn it down and pocket the dosh and walk away.
    After reading the comments above this option would not be viable.

    Does this make sense?

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  22. lolitasbrother (702 comments) says:

    Costs of Earthquake
    The massive $40 billion earthquake in Christchurch is $NZ40,000 for every taxpayer. Yes you that’s you, $40,000
    The Insurance Companies have socialized the costs but will not now insure risky many houses in Christchurch
    Of utmost importance is to know that Insurance Companies transfer the costs across the board,

    Replacement costs
    Yes as Farrar has pointed out they will argue with you, I advise every person to renegotiate house Insurance and reach a tight agreement.

    Agreed value.
    They will still argue, if the trash can falls aver

    Indemnity value
    To those of our brothers and sisters who travel abroad.
    Your Insurance cover will drop to Indemnity within a few weeks of your overseas trip a few weeks.
    Indemnity means your Insurance Company has the right to value your home at half its value

    All up front up
    Holysheet above believe me , I would rather take on the NZ army then these dog Insurers we suffer, so many people here have suffered Holysheet
    But I am raising our Insurance here to a Commercial level. I do not have good money but only this just because our nice house which we need.
    I am with Medical Insurance, previously MAS.
    Its rough down here in Christhurch, so much harder than I thought it would be
    Paul Scott

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  23. lolitasbrother (702 comments) says:

    just to repeat and thanks ”Nick” and “Paulus” and others Nick R (474 comments) says:
    May 27th, 2014 at 12:11 pm
    There is no guarantee for a homeowner that an insurer will pay out the sum assured on a home policy after a disaster. All the sum assured does is put a cap on the insurer’s obligation. They will still try to get out for the least amount they can – if they can pay out less than the full amount, they will. And bearing in mind the ongoing scope for SNAFUs between insurers and EQC, the prospects of quick payouts in a disaster (as opposed to a claim affecting just a single property, like a fire) are pretty low.

    Personally, I find it less irritating to think of insurance as a property tax rather than a service one purchases willingly. If you get anything back on it, that’s almost a bonus. No reasonable person would expect help from their insurance company after the Christchurch fiasco. The lesson there is that when the going gets tough, the insurers take the phones off the hook, head for their bunkers and wait for the Government to sort everything out. That’s what will happen in Wellington too, only now there will be an added problem because so much of the population will probably be under-insured.

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  24. peterwn (3,277 comments) says:

    holysheet – you have to re-build something the same or similar to claim the replacement value. If you want to walk away, the insurance will pay you the indemnity value only eg if the house is valued at $280,000 and the section at $100,000 ($380,000 in all) they will pay $280,000.

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  25. holysheet (402 comments) says:

    Thaks peterwyn
    so why is he having to insure his house for 800K if hes only going to get 280k for it?
    Its approx 340sq M

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  26. Grendel (1,002 comments) says:

    so its the insurance companies job to make sure you pick the right contents cover as well? or to make sure your car is insured for the right figure?

    Full disclosure, i am an insurance adviser and did a heap of work around this when the rules changed.

    what a stupidly focused article, by all means talk about how less than 20% of people have bothered to sort out their sum insured (my clients its 99%) but its not the insurance companies fault (assuming they have communicated with you).

    its not the insurance companies job to make sure you checked all the letters they sent you and hold your hand why you finally get around to insuring your house properly. this has not been a hidden process, it was well warned in advance, and started late 2012 (depending on insurer).

    the only reason the insurer put a default figure in place was because they had to pick A number. There is no reason to assume that the default figure has any relation to the actual rebuild cost. they even tell you this in their communications.

    its your house, its your responsibility to determine the sum insured you want to use. You can go the riskiest route and do nothing, and hope the default is enough.

    or you can use the online calculator and trust a computer program that looks at similar generic houses that might be like yours and hope its accurate.

    Or you can spend some money and get an insurance valuation with a more realistic idea of what the house will cost to rebuild.

    as mentioned above the cost to rebuild your house when it burns down on its own will be very different to what happens when the entire city falls down.

    the risk you take for being under insured is that you will need to cough up some more cash if the cost to rebuild is more than you are insured for, conversely you wont get any extra money if you over insure.

    however, i would rather be $50 000 over insured than under insured. as $10 000 of house cover costs about $1.11 a month in premium (insurer and excess depending), the cost for making sure you have a buffer is worth it (to me).

    however most kiwis are cheap bastards and will go for cheap premium and for the insurers who ask the least questions and then wonder why they have dramas at claim time. i would prefer as much underwriting as possible done at application, so as to give the insurer as few opportunities to bail on the claim at claim time. A focus to benefits and claim quality will reduce most dramas.

    the other downside to these cheap insurers is that there is no one on your side at claim time, you dealt with the 18 yr old on the phone to buy the cover, but they are not going to help you with the claim. a good adviser will walk you through the entire claim and is on your side (and depending on how you are insured, there is often another intermediary who will assist).

    insuring your most valuable asset after your income is worth spending some time, and calling 2 insurers to check prices is not what i mean. do your research, pay your money to get a proper analysis of your replacement cost (especially if you are in wellington and not on completely flat land), and make sure you choose a sum insured figure that will cover your house, and if not, be absolutely clear that you may end up having to foot the bill for the difference. personally $132 extra premium a year for $100 000 of cover is worth it to me. if you cannot afford it, go for a higher excess.

    insurance is about getting a claim paid, not paying cheap premiums.
    sorry, this was longer than expected.

    TLDR, grow up and sort out your insurance properly.

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  27. holysheet (402 comments) says:

    Grendel
    If I understand you correctly He would have to over-insure his house above it’s market value by 500k in case it got destroyed?
    He already has done this.
    Lets assume it got burnt down, would the insurance company build it again to the value of 800K?

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  28. Grendel (1,002 comments) says:

    market value is not the same as cost to rebuild or insurance value.

    you can build the same 150 Sqm house on a flat section for the same price in both Khandallah and Wainuiomata, but the khandallah house will have a much much higher market value. (ignore the price of the land as its not covered in the insurance anyway).

    the rebuild cost would be the same for each house.

    this is something i am seeing with many of my clients, where they have the same size and age house, the rebuild sum is very similar, but i know (as i usually financed the place) that the market value is vastly different.

    So for your friend, i would get an insurance valuation and insure based on that, it may look nothing like the market value.

    a good policy will state that your friends house will be totally rebuilt to a maximum cost of what you are insured for.

    some of the bad policies (such as some of the banks), will rebuild to current level, taking into account wear and tear etc. the good ones, you essentially get a brand new version of your house, built the exact same as it was (accounting for modernisation if the materials are no longer used).

    i hope that helps.

    edit to add – if a claimant decides to walk away from the house and just wants the cash, they will settle on an indemnity value, which each insurer will have their own calculation for. realistically i would suggest that in most cases, having a brand new house, then selling it will be better for you than taking the cash (land damage such as Christchurch not withstanding).

    Thats what my partner did, her house burned down. it was rebuilt to the exact plans, but she could not stay there as she kept having nightmares about waking up with teh house on fire (which is what happened), so she sold it and made a bucket on it, as it was a brand new house.

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  29. kiwi in america (2,454 comments) says:

    Paulus hit the nail on the head when he mentioned the reaction of the global reinsurers. People in Christchurch faced with lengthy delays in settling ‘above the cap’ claims blame their insurers and the EQC without realising it is the re-insurers calling the shots. Without the 11th hour rushed visit to Brussels by Brownlee, the head of EQC and the Insurance Council to meet the major re-insurers NZ came within an inch of having no new fire and general insurance able to be underwritten anywhere in country.

    The EQC scheme lulled retail insurers in NZ into a false sense of solvency over potential earthquake claims due to the effective $100k excess for earthquakes borne by the Crown via the EQC fund. But this fund itself was re-insured so these global giants (and the Lloyds names that sit behind some the reinsurers) are on the hook for $25B of the $40B rebuild. When NZ contributes only 0.67% of the worlds premium pool it’s no wonder the management of the the aggregate claim payout has been taken off the hands of NZ’s retail insurers.

    The price to stay in the NZ market was hypervigilance on claim settlements with a laser like focus on the quality of especially TC 3 zoned repairs/rebuilds. The reinsurers want to be sure that the job is done in such a way as to avoid the need for another big payout in the event of another large quake. The size of new/repaired foundations is crucial to this task and could only be accurately determined by individual section soil testing and unfortunately soil engineers don’t grow on trees. The other major delaying factor is the legal interface between EQC and the private insurers was never properly tested. We now know it was sloppy and enough for retail insurers to use as the public excuse for buying time as they made sure they abided by reinsurer imposed standards.

    Finally the issue of new polices had to be addressed because the NZ market had gotten majorly out of sync with its premium income with the race to offer first open ended (based merely in the m2 of the dwelling) full replacement and then to extend that to earthquake. When I worked for a financial services company that had its own inhouse F&G insurer in the early 90’s, earthquake cover for dwellings was for indemnity value only and a top up to full replacement was unavailable, then it was but for an additional premium and then it ended up being full replacement including earthquake for no extra premium! The re-insurers were categorical that this could not remain given the huge claim/premium mismatch after the Christchurch quakes hence the current debate on Agreed Value and the major push by insurers to assist their customers in getting the AV assessment as accurate as possible.

    People in Chch in the midst of messy drawn out insurance settlements find it convenient to blame CERA, Brownlee, insurers or EQC for their plight. Their ire is misdirected – the decisions are being made by Munich Re, Swiss Are, Lloyds and Berkshire Hathaway!

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  30. Ross12 (1,432 comments) says:

    Grendel

    I accept it is the policy holders responsibility to make sure it is right for them but my gripe is the Insurance company gave NO information on the changes taking place and how they as a company would be dealing with the changes. (I’m not talking about a small company here). I’ve found I can get $200k extra cover for the same premium elsewhere.

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  31. Grendel (1,002 comments) says:

    Ross12 – that is surprising as i have seen it everywhere (appreciate i have been keeping my eyes open for it though).

    AMI and State have on their windows “House insurance is changing”, others have mentioned it in ads (not for a while though), and my understanding was that (from what i saw), that when they announced the policy every policy holder got advised by mail, and then when your annual renewal came up, there was a letter in the renewal pack telling you what was going on and what in general you could do. all the ones i saw made it clear you could either use the online calculator or a vlauation, but if you did nothing the defalt would apply, and it may not be sufficient.

    the reason they did not tell you exactly what to do, is because they cannot be seen to be giving personalised advice, becasue the insurers are not set up that way. so they give ‘class’ information, advising what in general people should do (KiwiSaver providers do it as well). as there are not enough of people like me, and becuase many of the insurers wont use advisers and deal only direct, there is a lot missing. chalk this one up to the insurers refusing to fall foul of regulation.

    i dont doubt your insurer did not tell you, but it differs from what i saw in the market from people i was helping out (people who got their letter and decided to let us sort it for them, so i saw change letters from all the insurers).

    now the next question is, was the 200K premium for less, actually a better deal with the other company? how does the new insurer cover claims? was it total replacement, or indemnity replacement? what is the gradual damage cover etc. not saying you did not do your research, but premium alone is not the be all and end all of proper insurance.

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  32. Grendel (1,002 comments) says:

    Kiwi In America.

    i have a friend who is a commercial general adviser, and he told me that the insurance companies stats, showed that claims with an adviser in the mix were settled much much faster than the poor sods who bought direct off the phone.

    EQC does deserve some blame as they hold up the process.

    to make a claim you have to:

    1. get EQC to agree to it
    2. Get their assessor to see your home
    3. they will decide what to cover – and initially, all claims have to be approved by 1 of 2 people (no sampling done)
    4. then you get your insurer to do their assessment (often with the same assessor).
    5. then they argue with EQC.
    if no more damage is done, then you might get a claim settled. but if there was another, even small quake, then back to step 1.

    how it should have worked is

    1. you make your claim to your insurer
    2. they assess it etc
    3. they approve it
    4. eqc pays the first 100K, and they randomly audit the insurers to make sure its being done properly.

    having EQC check every single step just held it up. wasteful and pointless. the part of the claim that will only get you 100K could take 10 times as long as the bit that gets you $1M.

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  33. Ross12 (1,432 comments) says:

    Thanks Grendel.
    I would have expected what you outline in your 2nd paragraph but I literally got nothing. I knew the changes were happening and I was expecting a letter in the last year or so. There is a bit on there website now.
    The $200K extra is for a little bit more in premium but very close to the same. I’ll be double checking the issues you raise before I change over but from my research the policies are similar.
    ( As mentioned above , despite several phone calls and starting the formal dispute procedure a month ago I still do not have an invoice for the contents cover !! I know I’m only small fry but they clearly don’t care)

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  34. Grendel (1,002 comments) says:

    that sucks Ross, that you got the run around. i forget that some of the insurers are so used to not being questioned, that they can get quite slack. i take what we do for our clients and the information we get from our wholesale insurer for granted.

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  35. kiwi in america (2,454 comments) says:

    Grendel
    I agree re EQC – it should’ve been nothing more than a wholesale carrier of the first $100k dwelling $20k contents backed in behind the retail insurers leaving one entity to front the claimant. Its public face was a carry over from WW2 when it was the Earthquake and War Damage Commission and people wanted reassurance that both catastrophic risks were covered by the state in the days when the state was heavily involved with so many aspects of daily life in NZ.

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  36. Fentex (986 comments) says:

    The benefit of fixed value is if your place gets totalled, then bang you just get a cheque for the value insured, and all sorted in hopefully a few weeks.

    Speaking for myself, someone who’s insurance premiums have trebled, who had work done to about (I estimate) three quarters the amount I’ve paid in home insurance premiums (the only insurance claim I’ve ever made) I don’t think this idea will work.

    Insurance works on minimising individual cost by spreading risk – it won’t work if it’s priced on the assumption we all pay sufficient to recoup, say, GV in city wide devastation. Which is what this idea leads to, at minimum – who’s going to choose a cap less than GV? I expect most people want GV + 20% covered.

    We can’t all afford the premiums that would entail, so the result is going to be some people can’t afford insurance. So in the event of another earthquake everyone will be looking to the government or more likely, seeing that private insurance isn’t working due the cost demand a government insurer does the job – with the elimination of private profit taking reducing the premiums and cheap government borrowing reducing it’s exposer.

    Liking this idea is accepting that some people aren’t going to be insured, which I don’t have too much of a problem with (as long as no one is lured into folly as well*). But it takes some steel to hold to that which politics will test mightily.

    * Those people who bought homes on land that the CCC spent years denying permits for in the knowledge an earthquake would ruin them until compelled by fatigue and lawsuits to give way would have been effectively defrauded by the developers who sold them properties unfit for purpose, with business structures that would undoubtedly have bankrupted shells before any recompense could be obtained.

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  37. Paulus (2,633 comments) says:

    Fentex

    Your comment re demanding a Government Insurers does not hold water at all – remember State Insurance and Government Life – these were both sold off by the Labour Government – State went to Norwich Union and was gutted and sold to IAG (Australian Group) where it now is.
    The thought of the proposed “KiwiAssure” makes me laugh.
    Do you think that overseas Reinsurers will give any favourable treatment because of its name.
    Do you really have any idea how difficult it is to form an Insurance company which has acceptable solvency margins to the overseas markets and regulators.
    I am probably have the most experienced in New Zealand in this field having spent over 40 years (now retired) in the business of insurance. I have specialised in this work in London, Zurich, Bermuda before coming to New Zealand in 1975.
    I was CEO of the only New Zealand owned Reinsurance company for 14 years.
    P.S. I have never had a House Insurance claim either, being a Homeowner for over 50 years.

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  38. Fentex (986 comments) says:

    Do you think that overseas Reinsurers will give any favourable treatment because of its name.

    I think most people will expect a government owned and operated insurer, with access to government funds (which may include borrowings at the low rates governments attract) has a reduced need for foreign re-insurers and can be backed, in the event of a catastrophe, by the governments own credit rather than insurers.

    I may be wrong, I haven’t worked in the industry and don’t know the numbers, but I suspect politically – in an environment where many simply could not afford adequate insurance – pressure would mount for a government owned insurer to provide.

    I imagine that’s why State Insurance came into being in the first place.

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  39. felun (1 comment) says:

    i think you will find in the future banks will want proper quantity surveyor rebuild estimates provided to lower their risk as well, especially with low LVRs. They wont want to risk you underinsuring. People need to get with the program, it might cost $500 -$800 to hire a QS to do this, but you do it once, then add inflation each year. No-one gripes about paying this to a valuer (who doesnt do alot for that money) when they need to re-finance or move house. Yes there are some shonky “valuers” out there, just make sure you hire an experienced QS. Or you might just end up with some BS.

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