Home and contents insurance mistakes
The home insurance industry is experiencing a massive overhaul, with the biggest changes in 20 years underway.
Premiums have gone through the roof, and new methods for calculating the value of cover are causing confusion.
Insurers have always been mercilessly clinical when it comes to dealing with claims, and now there is a whole new range of potential pitfalls on top of existing friction points.
Research agency Canstar Blue has just released its latest home and contents consumer satisfaction survey.
The 709 people who answered had all made a claim in the past three years, and their experiences give us some insight into the sort of traps that can befall the unwary.
1. Not enough cover
The majority of those surveyed felt they had enough insurance cover to get to sleep at night.
However, there were still about one in six people nervous about how they had fare should the worst occur.
Worryingly, 26 per cent said they had reduced their cover because of financial constraints. Twice as many Auckland homeowners were cutting back, and the younger Gen X and Gen Y respondents were also much more likely to do so.
The Insurance Council of New Zealand (ICNZ) does not have any data to support the survey's findings.
But spokesman Samson Samasoni says ICNZ is aware that some people essentially ''self insure'', due to their personal circumstances.
''[T]hey do so in the knowledge that there may be a shortfall they will have to meet if something unfortunate were to occur,'' he says.
2. Confusion over sum insured
The seismic industry shake-up, caused by the Canterbury earthquakes, is the change from replacement value policies to ''sum insured''.
Now it's homeowners' responsibility to estimate rebuild costs, which is no mean feat.
Samasoni says a few people are making an informed choice to under-insure, with the knowledge that they may have to rebuild a more modest home.
But many of those who do not have enough cover are not doing so intentionally.
Even before the changes, Insurance and Savings Ombudsman Karen Stevens was dealing with disputes over existing sum insured policies.
''We do anticipate there will be issues about it that arise down the track,'' she says.
''A lot of people still probably haven't realised what they have to do, and how they have to do it, despite the publicity.''
In the Canstar survey, 24 per cent still did not know the difference between sum insured, replacement, and indemnity cover.
3. Paying too much
The flipside of being underinsured is actually paying too much.
This was a big bugbear for the survey respondents, with six out of 10 people convinced they were being fleeced.
If so, it comes down to two things - either they have gone overboard with their sum insured calculation, or they have failed to vote with their feet and switch provider.
4. Not shopping around
A few months ago, AA Insurance boss Chris Curtin warned that premiums could soar even higher unless consumers did their bit to improve competition.
Curtin said he found it ''astonishing'' that only about one in eight people switched when their policies came up for renewal, a figure backed up by the ICNZ.
Getting multiple quotes is essential. It could pay to use an online comparison tool, like MyInsuranceGuide.
Canstar found roughly one in four people had used such a service, with Aucklanders much more likely to do so, and Baby Boomers lagging behind.
5. Buying the cheapest policy
However, Samasoni warns it would be wrong for customers to base their insurance decisions solely on price.
''Customers need to be very clear about what the policy covers and check out the conditions and exclusions of their cover with their insurance company or broker,'' he says.
Stevens agrees that some of the cheapest deals inevitably ''end up being very expensive in the long run.''
She says one common mistake is buying contents cover for ''present day'' or market value, but thinking you are going to be covered for brand new replacements.
The other factor to consider is service. If your company is a nightmare to deal with at claims time, the cheap deal is no longer going to seem like such a great idea.
Eighty-four per cent of those surveyed reckoned they got good service, and said claims were easy to process.
Cantabrians understandably had a more jaundiced view, though 76 per cent were still happy.
Canstar's survey also assigned ratings to the major players, which is a potential starting point for choosing a provider.
AA Insurance was the only company to get the full five stars, ahead of BNZ, State and Westpac on four stars, and Vero, AMI and Tower with just three.
6. Low excess
Why would you volunteer to pay a higher excess when you make a claim?
Because it could save you more money by reducing your premiums, as 40 per cent of Canstar's respondents have already realised.
MyInsuranceGuide estimates you could knock as much as 10-20 per cent off, and then simply set money aside to cover the higher excess when an accident happens.
However, Insurance Brokers' Association spokesman Steve Wardley says there's a limit to the premium benefits gained after a certain point.
''It can be cost effective at some level, depending on the insurer and the type of policy,'' he says.
Personal preferences will apply too, but it's definitely worth thinking about.
7. Specify high value items
One in five people, and a whopping 44 per cent of Aucklanders, have been unable to claim for high value items because they did not specify them on the policy.
These sorts of disputes often make their way to Stevens' office. High value items usually have to be identified separately, and there are also limits on certain categories.
''If a woman for instance has a lot of jewellery stolen in a burglary...she might have had, say, $40,000 worth, and at the end of the day all they're getting back is, say, $10,000,'' says Stevens.
Wardley says insurers are perfectly within their rights to limit claims if that's what the contract says.
''None of those things are secret things, they're all spelled out,'' he says. ''It doesn't necessarily make for fun reading, but that's often the bit that people don't do.''
It's worth noting that Baby Boomers, the youngest of whom are pushing 50, were far too wise to skim over the fine print, with only 6 per cent having been caught out.
The recurring lesson of home and contents insurance is to make sure you fully understand exactly what you have signed up for.
You can guarantee that your insurer knows the fine details of every last clause, inside and out.