Homeowners to assess rebuild cost
Homeowners are being asked to take on extra responsibility for house insurance calculations as part of sweeping changes to insurance policies.
They will not only need to remember to pay annual premiums, but also have to calculate a correct "rebuild" valuation on the residence for insurance purposes.
The calculation requirement is being forced as insurers switch from open-ended "like for like" home replacement policies to capped "sum insured" policies for homes throughout New Zealand.
The change is a result of the Canterbury earthquakes of 2010-11 and pressures from international reinsurers.
A house valuation process will be a complicated task for many people, particularly the elderly.
Some in the insurance industry say that some homeowners could spend as little as 15 minutes on a calculator-driven process to help find a realistic value for their house.
Insurers will provide those online calculator tools, but not all Kiwis have easy access to a computer. The online calculation will be a rough estimate and some may under or overvalue their home. If a home is insured for $100,000 more than it costs to rebuild in the event of a disaster, the insurer will not pay the extra amount once the home is reinstated.
Owners with more expensive or out of the ordinary houses may have to pay a valuer or quantity surveyor to decide on a value that will mean they get the right level of insurance cover.
Even those living in relatively simple homes may not be aware of the information such as the age of the house or its building makeup to help correctly calculate the value.
Mistakes can easily be made in formulating a value for home insurance purposes, legal experts add.
Giant international reinsurers are driving the change. A new "sum insured" insurance policy will mean homes are insured on a maximum dollar amount basis, so reinsurers know their exposure.
Duncan Webb, a partner with insurance knowledge at Christchurch law firm Lane Neave, said the pressure was now on homeowners, many who were relatively unsophisticated and could make mistakes, to calculate an accurate replacement value.
An example might be an elderly person who bought an ownership flat five years ago for $147,000 and needed to insure this older-style flat under the new model.
It was a complex valuation exercise for someone who may not know much about building materials and costs. They could be offered a replacement cost of $250,000, but not realise replacement was nearer $400,000.
A quantity surveyor was better at estimating the rebuild cost of a house, whereas a valuer more often calculated the market sale value, Webb said.
Insurance Council chief executive Tim Grafton said AA Insurance had been the first insurer to change to "sum insured", which was a run of the mill model for insurance in other countries.
There had been no significant problems as a result of AA's changes to the new house insurance policies issued from December 16.
The calculators being provided by the insurers were proving usable, Grafton added.
"You just go in online, answer the questions and it spits out an answer at the end. It is pretty straightforward."
The rebuild cost was not the same as the rateable value or sale price, he emphasised.
Owners with more expensive homes may do well to engage a professional.
"If you're fortunate enough to own a $3 million house with granite benchtops, gold taps, it would be very wise of you to get someone in and give you an assessment on how much it would be to rebuild."