Seismic changes in house insurance to 'sum insured'
VERO, STATE, AMI and NZI will all follow AA Insurance to switch their house insurance policies to "sum insured" in a seismic shift sweeping the industry.
Currently, house insurance pays up the sum needed to replace homes in the case of total destruction without policyholders needing to specify the sum they will be paid in such an event.
But AA Insurance announced last week new house insurance policies issued from December 16 would be sum insured where homeowners had to specify the replacement cost of their home.
It is a move that will shift the onus to understand the cost of rebuilding from insurer to homeowner requiring homeowners to have a clear understanding of likely rebuild costs when they take out a policy and each year when the policy is renewed.
The change is driven by international reinsurers, who want to have a clearer view of their natural disaster risk, and the pressing need to keep house insurance affordable.
It does bring the risk for most homeowners that the sum they insure for does not turn out to be enough, particularly in huge events where rebuild prices can rise. Insurers will help with online rebuild cost calculators. Homeowners can also pay professionals to help establish rebuild costs.
IAG, which owns State, AMI and NZI, said it would follow suit next year. "The principle of the change is to ensure that the total sum insured of a home will now reflect a home's likely rebuild cost, including any home features not ordinarily covered under the policy. This provides a more accurate level of cover for customers and insurers when it comes to the total loss and rebuild of their home," IAG said.
Vero said new policies will be sum insured from April. Existing policies will switch on 1 June.
Sunday Star Times