Fears for under-insured elderly
Confusion reigns about sum assured insurance cover among older home-owners, a survey of users of the Grown Ups website suggests.
House insurance changed in the aftermath of the Christchurch earthquakes with most insurers shifting from total replacement policies to sum assured, where the homeowner has to nominate a sum which becomes the maximum the insurer will pay if their home is destroyed.
It was a move sparked by the shock of international reinsurers who discovered that their true liability for rebuilding homes in Canterbury was far higher than they had expected.
But there are growing indications that people are struggling to understand the changes that have taken place to insurance, and respond adequately.
Of the 459 older people who answered the survey by quantity surveyor Construction Cost Consultants, which offers rebuild estimates for insurance purposes, only 62 per cent felt confident they were insured for the true cost of rebuilding their home.
And 44 per cent of those with house insurance were not even sure whether they had accepted the default sum suggested by their insurer.
Default sums are estimates of the cost of a rebuild based on the average cost per square metre of rebuilding homes in New Zealand, estimates that can be significantly wrong for many homes which would leave the owners either over- or under-insured in the event of a catastrophe happening.
And despite their confusion, the older people who answered the survey on Grown Ups appear to be more proactive and well-informed than the average bank customer - 45 per cent said they had not accepted the default suggested which compares favourably to bank customers, 90 per cent of whom this paper reported in October last year were accepting default estimates.
But when challenged on whether they felt accepting a default sum was something they would do, 52 per cent of those surveyed by Grown Ups felt unable to answer the question.
Trust levels are not particularly high either with 65 percent saying they did not believe the calculators provided an accurate calculation of the rebuild cost of their home.
And half of respondents also doubted their ability to measure their home accurately enough to use the calculator correctly.
Gary Caulfield, managing director of Construction Cost Consultants Residential, says the survey results show the gap in understanding that is putting Kiwi homeowners at risk.
CCC's own assessment of more than 25,000 residential properties has found that nearly all homeowners are underinsured, most by around 25 per cent of rebuild cost though some by up to 50 per cent, which would imply an insurance gap of more than $160 billion.
Caulfield said its discussions with major banks and insurers indicated 93 per cent of homeowners who have renewed their policies since July 2013 have accepted the default sum, with most of those who didn't calculating their insurance using one of the online calculators with a tiny minority using property valuers or quantity surveyors to get a more accurate indication of rebuild costs.
"In our view there has not been a sufficient degree of education to ensure homeowners are covered for the full cost of rebuild.
"Insurers and banks are doing their best in response to new demands from reinsurers, but to put the onus back on homeowners, few of whom have the necessary expertise to assess their own number correctly, leaves an enormous amount of personal wealth unprotected."
Some appear scared of seeking more cover, but the annual costs of more cover are relatively small. On average, every additional $50,000 worth of cover costs about $75, Caulfield said.
According to its website, Construction Cost Consultants charges $569 for a basic rebuild estimate based on an online survey, and $1144 for an estimate based on a site visit.
There is no obligation on homeowners to get a professional rebuild estimate, but it may provide comfort that your home is adequately insured.
Free online calculators are available. Insurer IAG provides one at www.need2know.org.nz although it says it is not suitable for homes of more than 700 sq m or where the likely rebuild cost is more than $2m.
Sunday Star Times