Christchurch commercial buildings are probably up to 30 per cent underinsured.
That's the view of Michael Drayton, a speaker at this week's Australasian Natural Hazards Management Conference at the University of Canterbury in Christchurch.
Drayton said it was difficult to put a number on the underinsurance in Christchurch which applied to every single building.
"But 20 per cent to 30 per cent underinsurance is not unusual from what we've seen. And it's not unique to Christchurch. Underinsurance is a feature that comes up around the world, post disasters."
Drayton is a New Zealander working for United States firm Risk Management Solutions which produces risk models for the insurance industry.
Drayton said a lot of buildings were accidentally underinsured because inflation had increased the replacement cost or value and valuations had not been done regularly enough.
He did not know what the implications of underinsurance were for the rebuilding of Christchurch but noticed only a few commercial buildings were going up.
The CBD blueprint was for a smaller city and that might be "just as well" because the insurance money could be short of the cost of replacing the commercial floor area the city had before the earthquakes.
Christchurch building owner Nick Hunt, who has just rebuilt Briscoes in Salisbury Street, said he had been very conscious of the need to update his buildings' valuations each year and only a small one slipped through so he was not facing extra costs.
"As far as Briscoes was concerned, we were pretty much right on the mark."
He said the insurance premiums for new buildings were "exorbitant" and the huge excesses being required, between 5 per cent and 10 per cent of the building's value, meant in the future insurers would only pay out on major damage.
He called on insurers to be "more realistic" on insurance charges because buildings going up now were of much higher quality and likely to sustain less damage.
Ashton Owen, whose family is rebuilding on its St Elmo Courts site in Worcester St, indicated the family was borrowing to rebuild because it only had indemnity insurance. But Owen said the new building would have a much higher value, with its quake-resilient technologies such as base isolators and engineered timber framing.
"The idea is not only are you using new technologies to entice people back into the city and back into your premises, you are using it because if there is an event you are really safe and the idea is that there shouldn't be that much damage."
The new building was supposed to stand up to a one in 2500-year earthquake.
Drayton said the way insurance worked in Christchurch was tending to result in buildings being demolished rather than fixed. That was causing friction between engineers who said buildings could be fixed and insurers.
In his presentation, he gave an example of a building that would cost $65 million to rebuild, but it was only insured for $45m, a 30 per cent underinsurance. The building was 60 per cent damaged and the damage was $40m.
In most parts of the world the insurers would be liable to pay $27.6m, 60 per cent of $45m sum insured.
However, in New Zealand, the damage was $40m of the $45m cover, a 90 per cent ratio, and then foundation design and more building code requirements added more cost to a rebuild so the owner and insurer settled at the $45m, 100 per cent of the sum insured.
- © Fairfax NZ News