Southern Response offers cash
Crown-owned Southern Response is offering cash settlements at full replacement cost to customers, but only in certain circumstances.
This is a change in tack for Southern Response and appears to stand out from the approaches of the country's two largest insurers, IAG and Vero.
Southern Response is the Government company managing the former AMI earthquake insurance claims.
It said this change had been approved by its panel of 42 reinsurers because there was no provision in its policies for that.
Typically, insurers will not pay out the full cost of replacing a building in cash. If the insured person does not want to rebuild and wants a cash settlement, the cash amount is usually lower than the cost of a rebuild.
A cash settlement is often the "indemnity value", which for most insurers is the market value of the property less the land value.
Southern Response chief executive Peter Rose said the company estimated the changes would probably increase the number of cash settlements from 25 per cent to 30 per cent.
Southern Response has about 6700 properties with claims over cap ($100,000 plus GST). The number of claims associated with those properties is 10,460.
He said reinsurers agreed to the changes because settlements would be quicker and there was value in that for them. Also there was greater certainty for reinsurers in what they would be paying rather than waiting several years for houses to be built.
But Rose said Southern Response would not agree to full-replacement-cost cash settlements just to get rid of difficult customers.
The intention of the insurance policy was still to rebuild homes, not to provide cash.
A full cash settlement would be approved if an elderly person wanted to buy a retirement unit. Rose said Southern Response would pay the cash difference if the cost of the retirement unit was less than full replacement cost.
Southern Response's previous stance was to offer cash settlement through these options:
A market-value cash payment based on indemnity value rather than replacement value, or
The insured buys another house.
The insured manages their own rebuild.
Southern Response's Changes
It will consider these circumstances for a cash settlement of the full replacement cost:
Where the customer's land presents an unviable build.
Very difficult or lengthy builds due to the characteristics of the house or land or where there were a lot of complications of shared services and uninsured works.
Extreme personal circumstances.
Where the build cannot be supervised efficiently.
Extreme difference between what the customer had and what they now want, such as where the customer plans a major upgrade in what they are building or buying and evidenced by a build contract or a sale and purchase agreement.
Where the customer wants to offset the extra land cost in a house and land package within Canterbury.
As a minor cash provision for a customer who will take a quicker lower value build.
In the case of a well-defined downsizing.
New Zealand's two biggest insurance companies, IAG and Vero, do not appear to offer cash settlement at full replacement cost.
Dean MacGregor, executive general manager Canterbury Earthquake Recovery for IAG, said it discusses cash settlements case by case. But it relies on the principle that the customer intends to reinstate.
McGregor said reinstatement could mean buying another house, or buying a retirement unit in a village.
But McGregor said if a customer bought a cheaper unit in a retirement village than the cost of a rebuild of their property IAG would not necessarily or automatically provide the customer with the cash difference.
Southern Response has said it would provide the cash difference.
Vero's reply was that its policy interpretations really depended on the policy and it approached that on a case by case basis.
It was difficult and a bit unfair to generalise about this process, a Vero spokeswoman said.