Navigating house insurance changes
When my policy renewal letter from the insurance company arrived in the mail, I knew I could put it off no longer. It was time to sum insure.
Like everyone else's house insurance, my policy has rolled over every year with little more than a slight increase in premium.
This year it renewed with a very big caveat: unless we took steps, we could no longer bank on the insurer fully replacing our house if anything went wrong.
That means guessing what our house is worth to replace, or getting in a valuer. So I sit down at our computer and hit the "sum insured" calculator to try and figure out what my house is worth.
The Cordell calculator, used by a number of insurers, gets straight to the point. It asks for my postcode. Since my postcode is rural and not in the heart of Auckland, I appreciate the distinction.
Then the questions begin. What kind of house do I have? Modern? A bungalow? How high are the ceilings? What kind of materials is it clad in?
Being spatially challenged, I call my husband in for some of them, like "how big is our deck" and are we "extensively" or just "averagely" fenced? And how about our outbuildings and Para pool? The calculator wants to know about them all.
Thirty or so questions later, it's time to add it up - and it's a shock.
The replacement cost of our house is more than twice its rateable value. In my postcode, only mansions are worth that much.
So I review. Did I click something wrong? Are my ceiling heights too high? Was it worth claiming the double garage when it's really a men's shed that leaks?
One of the factors I do have to take into account is the cost of demolition. That can't be cheap, I think.
Another clue, according to my insurer's website, is that "sum insured" does not include the land value or reflect what I paid for my house.
Speaking plainly, the market value of my home, "does not equate to what it costs to rebuild it".
David Clark, chief executive of the Property Institute which covers quantity surveyors and registered valuers, says this is one of the major misunderstandings about sum insurance.
With few exceptions the calculator's value will be higher than the market value and registered valuations are proving markedly higher again.
He admits valuers are not sure why there is such a difference.
"The calculator out of the insurance companies just produce a single figure at the end, and we can't actually see where the differences lie.
"In a lot of cases it will be complications around things like retaining walls, outbuildings, extensive fencing, extensive kitchens and the like ...We assume it's those sort of things."
Getting an insurance valuation from a quantity surveyor is considered the most accurate but most expensive way of getting an accurate handle on your rebuild costs. The next best option is a registered valuer, but Clark admits many people are loathe to pay $500 or more to get that level of accuracy.
However, the calculator is a blunt instrument. For example, there is no question that will take into account any fancy kitchen fittings or even, in some cases, how big your kitchen is.
The most concerning element of this exercise is that most Kiwis have yet to do this for themselves and like me are officially under-insured.
Insurance companies are reporting that roughly two-thirds of their customers have not changed the house values suggested by their insurer.
After the Christchurch earthquakes many insurers found that the costs of replacement were higher than they anticipated.
Clark says the cost of demolition, for example, was always thought to be about 10 per cent but in Christchurch that figure soon blew out.
So now insurers want to ensure the premiums they are getting are going to cover their liabilities.
The problem for policy holders is the sum insurance process will almost certainly mean a big lift in their premiums.
One option is a form of self-insurance; in other words, insuring only what you want to replace. By knocking off 5 square metres I managed to reduce my sum insured value by $12,000.
By deciding not to rebuild my driveways and or my carport, I'm down another $57,000.
And the insurers are not bothered by this.
"We're getting reports that some appear to be nominating sums that might be below the default and of course that's the customer's prerogative," says Insurance Council spokesman Samson Samasoni.
"What we're concerned about is that homeowners nominate a sum that meets their future needs.
"We know of customers who are deliberately nominating a figure below the default amount because they plan to downsize if some misfortune occurred."
In other words, an elderly couple in a five-bedroom home might justifiably insure themselves on the basis they won't replace all those bedrooms if disaster strikes.
However, it's clear that this method needs agreement from your insurer.
As always, it's also worth checking just how much of a difference in premium it would be to deliberately reduce your rebuild value. In some instances, there may be little in it.
I try another calculator. The results are the same but it helpfully provides a breakdown of demolition and professional fees.
Demolition, it turns out, would cost about $26,000; professional fees, such as an architect's costs or building consents, are $32,000. GST is a whopping $87,000.
And I learn an interesting fact along the way about the postcode that I provided at the start.
After all, if land values aren't part of the equation, why does the calculator bother to ask?
Clark tells me that the postcode is a guide for the calculator on the stability and quality of my land, not whether I'm living in a pricey or cheap location.
I sigh. It seems there's no getting around a higher premium, but at least I understand why.
I reach for the phone to tell the insurance company to change my policy.