Looking at contents insurance claims

COVERED: When buying a home you need to take out house insurance to ensure you're protected if anything happens to your largest investment.
COVERED: When buying a home you need to take out house insurance to ensure you're protected if anything happens to your largest investment.

People have contents insurance to ensure their things can be replaced in the case of loss through misadventures such as fire and burglary.

When an insurer receives a claim in such an event, the claimant has to list the stuff lost in order for the insurer to work out what it is liable to repair, replace, or the size of the cheque needed to settle the claim.

But giant insurer IAG, which operates the State, NZI, and AMI brands, says only about 1 per cent of claims result in the insurer paying out the maximum "sum insured" the policyholder opted for before the end of the claimant's list is reached. In other words, these householders were underinsured.

However, IAG spokesman Craig Dowling said the figures were skewed by the sheer volume of content claims involving limited loss, damage or burglary where only some items were claimed for and the total sum insured amount was not threatened.

"In burglary situations, for example, a customer may lose a range of high value items but not all contents unless the burglar has a lot of time and a very large truck.

"So it is quite conceivable that many are underinsured but just haven't been fully exposed."

In the cases of those who "max out" on a claim, IAG did not collect data on the extent to which their claims fall short, Dowling said.

In cases where the loss is higher than what is covered under the policy, IAG will pay out one cheque for the sum insured rather than pay out on each individual item and it is then up to the customer to decide what they want to replace.

Working out how much your stuff should be insured for is not easy and as time passes assessments can go out of date.

There are two broad types of policies on issue: standard "replacement value" policies, and economy policies where many items are covered for "market value", which is the price you would pay for an item of that age and condition if you bought it on the day of the loss.

Even on replacement policies, some items like bed linen, books, CDs, DVDs, clothing, electronics and personal effects are only covered for "market value".

The claims team is responsible for determining what to pay and the results can leave policyholders short of cash to replace items.

In one ombudsman case, a woman lost her hearing aid but her policy covered personal items for market value only.

The insurer deducted 75 per cent depreciation, which was $2175 below the new market price.

The result was the woman did not receive enough from her insurer to buy a new hearing aid.

She fought the decision and her insurer agreed to pay more.

While claims for total replacement for a house fire are uncommon, IAG gets many claims for houses that have suffered partial fire damage and the sum insured is quickly used up because of underinsurance.

"Some of the feedback we get from customers is that they take a contents policy out when they probably didn't own much or were flatting and as their families grow and they accumulate more household items they forget to adjust their sum insured appropriately," Dowling said.

Often people also forget to tell their insurer about precious pieces of art or jewellery, although many contents policies may pay only a set maximum for items like jewellery, cash, collections and art if they are not "specified" on their policy.

Insurance adviser Katrina Church from Insurance People cited two recent examples of that - one with a couple who had built up an extensive art collection and another with a stunning collection of Barbie dolls.

There were thousands of the dolls, including some made in the 1960s that were worth many thousands of dollars, Church said.

In both cases, the only way to ensure collections were adequately insured was to get them valued, Church said.

At claims time, insurers want to see proof of two things - ownership and value.

Getting and storing valuations can prove crucial.

The process can also identify items that need to be "specified".

In one case, after a burglary, a man found his insurer limited its payout to $4000 for two unspecified cameras and lenses that were worth much more than that.

Church said in total loss scenarios like fires, insurers were reasonable about the level of proof it was possible to provide but she recommended people take photos of their items.

These photos and other evidence of ownership then need to be stored somewhere accessible in the case of a fire.

Electronic data can be stored online through the likes of Tower's "Insurance Vault" or with brokers.

AA Insurance says some people take videos of their homes to speed up claims handling but these also need to be stored safely offsite.

Insurers steer people to online "contents calculators" to help estimate how much cover they need, though estimates vary among insurers.

AA Insurance said: "The simplest way to work out how much to insure your contents for is to walk through every room in the house where you live, including the garage, carrying a pad and pen and list everything you own, then the estimated replacement cost. You should include things like crockery, cutlery and cooking utensils, as they all add up too.

An "average" home contained about $76,400 worth of property, and an "above average" home about $214,000, AA Insurance said.

Sunday Star Times