So there was this earthquake in Christchurch a few years ago. Devastated the city, and trashed the homes of countless people. Who then claimed on their insurance. Which is when we all found out that the insurance companies had made a bit of a cock up in investing the funds they have been taking from us in the form of premiums, and in “re-insuring” their risk. Which means they didn’t have the money to pay out.
And this is in a country where a proportion of the insurance for earthquakes is dealt with by a government agency – EQC. Some of your insurance premiums goes to EQC and they pay out the first $100,000 of any claim. After that – you go to your regular insurance company for the rest.
Only now, they have to claw back all the money they have had to pay out, and they have a genuine and seemingly heartfelt desire never to get caught on the hop with such a huge disaster again. Apparently – someone forgot to mention to the insurance companies that they were selling insurance to people living in an earthquake zone, Where it has been known for an entire town to be destroyed already. And if there was anyone left who genuinely believed that the premiums you pay actually cover the cost of a claim, and that you wont be forced to pay it all back via increased premiums afterwards – be warned. Because now – everyone in NZ is having to pay extra premiums to cover the cost of the Christchurch insurance payouts. And to ensure that the insures (eeek!) never have to pay out like this again.
Up until now – the cost has been borne out mostly by apartment owners in Wellington – because apparently all our buildings are going to fall down all of a sudden. So apartment insurance has doubled, tripled even quadrupled in some buildings, for no reason other than because the insurance companies can. And because they all did it – there is no alternative. I think that’s called a Cartel.
But now, they have all homeowners in sight – and you need to know that this could make a very big difference in both your cots of living, and what you are covered for.
You see – the insurance companies will no longer cover you to rebuild your house in the event of it becoming uninhabitable.
Insurance has changed from Total Loss – where the insurer will pay to rebuild your house, to Sum Insured – Ie they will only pay out up to the specified amount. If a total rebuild is more than that – tough. If however a total rebuild is less than the sum insured – you only get the cost of the rebuild cover. But they will take your premiums with pleasure for the whole amount.
Nice huh. AKA – Heads they win, Tails you lose.
And it is now YOUR responsibility to find out how much to insure your house for.
And in a nice twist – its worth remembering that you MUST have buildings insurance in order to have a mortgage. So unless you buy a house outright – you can’t get away with telling the vultures to sod off.
So – how much does it cost?
First you probably need to visit http://www.needtoknow.org.nz/ To work out a rough calculation for rebuild costs. (Helpfully provided by IAG – an insurer so totally unbiased). You can get a Quantity Surveyor to do the job properly, but I hear that costs around $1000. Personally I think the IAG tool woefully undervalues but I’m damned if I’m going to be armtwisted into propping up the whole insurance scam industry and forking out another $1000.
Then you need to shop around. Depressingly – the bank you have your mortgage with is a good start – they get massive discounts – but do phone round. Then you cry.
- Premium 8 years ago for Total Replacement: $559
- Premium Last Year for Total Replacement: $ 1020 (we have to pay back a whole $800 claim!)
- Premium this year for bank supplied guesstimate of $650k Sum Insured (With new $5000 excess for ” Natural Disasters”: $ 1360
- Premium for $800k Sum Insured based on Needtoknow: $1575.
- Premium for same cover via a broker rather than the bank: $2500
- Our contents insurance is another $500 a year on top of that (or an extra $1000 if we don’t go through the bank)
And a quick check with some UK friends came up with someone in London (where premiums are higher than in the rest of the UK) is paying the equivalent of just $700 a year for both buildings and contents insurance.
So be aware – if you still think New Zealand is cheap to live in.