Replacement house insurance cover

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#977149 30-Jan-2014 10:37

The scam is they have moved the ultimate responsibility for determining the rebuild cost of your house to you, the individual.

It would seem to me that there will always be individual variation that even excellent valuers and builders won't pick up so who would I have determining the cost across a large number of properties?

Well, if only there was an expert party involved, that had an interest in such a large number of properties that they could afford to approximate values so that the number they underestimate and overestimate at least stand a chance of cancelling each other out? Someone like... I dunno, the insurance companies?

But no - let's make it every single individuals' responsibility, so that every single individual has to overinsure to be safe. Remember, that individually declared value is NOT how much your house is insured for, it's how much you pay premiums on.

THAT'S the scam.

Cheers - N

Please note all comments are from my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.

bazzer

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#977218 30-Jan-2014 11:13

It's no different to any other insurance though is it? How much is my car worth, $10k or is it $11k? That's not that big a deal. How much are my contents worth $100k or are they $110k? Again no big deal. So why is the difference between $1M and $1.1M such a big deal to you?

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#977220 30-Jan-2014 11:16

bazzer: It's no different to any other insurance though is it? How much is my car worth, $10k or is it $11k? That's not that big a deal. How much are my contents worth $100k or are they $110k? Again no big deal. So why is the difference between $1M and $1.1M such a big deal to you?

With car unless you are paying (rare) replacement insurance you are covered for indemnity, the insurer will pay in the event of total loss what they deem the value at the time of loss irrespective of the sum insured. Contents is touch the same but some goods are replacement value depending on age etc..

Talkiet

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#977229 30-Jan-2014 11:24

bazzer: It's no different to any other insurance though is it? How much is my car worth, $10k or is it $11k? That's not that big a deal. How much are my contents worth $100k or are they $110k? Again no big deal. So why is the difference between $1M and $1.1M such a big deal to you?

Because the insurance companies are making money on the additional premiums ($100k in your example) and providing ZERO extra cover for that. On an individual basis it's no big deal, but multiply that by everyone with a housing policy and that's an AWFUL LOT OF EXTRA PREMIUM being charged for no extra cover being given.

It's similar in concept as you point out to cars or contents, but for the Vast vast majority of people, their house is by far their largest asset and as rational individuals they can't afford not to ensure it's adequately insured.

An individual getting caught $1000 short on a car payout is going to have less of an issue than someone getting asked for $100k extra to rebuild their home.

The reasons given for moving to this non-expert, self declared, non binding (the insurance company will do their own costing IF you claim) rebuild estimates are distracting - they have in one fell swoop capped payouts on every housing policy to a strict function of premiums, and transferred all risk for unforecast costs to the individual - and away from the large companies where the averaging effects across hundreds/thousands of policies would take care of this.

Cheers - N

Please note all comments are from my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.

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#977235 30-Jan-2014 11:30

Fred99: As I understand it, the purpose of the change to sum insured isn't to reduce the amount to be paid out in claims for natural disaster, but so that the insurance and reinsurance companies can present a figure disclosing their maximum liability/exposure. The reinsurance is purchased in fixed quantity contracts - not "open ended", so if the insurance company contracts with the homeowner is open-ended, then there's a risk that claims will exceed the ability of the insurer to pay (from reserves and reinsurance), which is exactly what did happen with AMI - as despite exceeding NZ Government regulated prudential standards and having an A++ rating from AM Best, AMI became technically insolvent - clearly unable to meet the total cost of claims. That this could happen was retrospectively obvious. Change was inevitable - as insurance is a fundamental need underpinning the entire financial system.
So I don't see the change to sum insured as a "scam", but an inevitable consequence of what happened over the past few years in NZ.
The biggest scam is the way EQC interprets the EQC Act, how Government has shifted goalposts for repair in the wake of the Chch quakes to be "less onerous to insurers", and the PR battle that's been waged in order to convince "the rest of NZ" that everything is going well under the circumstances.

These kinds of things are often poorly handled here, it seems.

Take for example the leaky homes thing. I can see no morally justifiable reason why a homeowner should have even $1 of liability in such matters. In the UK, they would sue the architect, the Chartered Surveyor, the builder and/or the council for 100% of the cost as their professional negligence caused the problem. They may even sue the lending bank, because in the UK the banks won't lend until their Chartered Surveyor (a more advanced version of a Registered Valuer here) has inspected and valued the house. The home owner had no control over it unless their professional advisors said "use this timber or you'll have a problem" and the home owner said "yeah, nah, it's too dear, she'll be right, use the cheap stuff".

I simply cannot understand why homeowners have a scintilla of liability.

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#977239 30-Jan-2014 11:33

Talkiet:
bazzer: It's no different to any other insurance though is it? How much is my car worth, $10k or is it $11k? That's not that big a deal. How much are my contents worth $100k or are they $110k? Again no big deal. So why is the difference between $1M and $1.1M such a big deal to you?

Because the insurance companies are making money on the additional premiums ($100k in your example) and providing ZERO extra cover for that. On an individual basis it's no big deal, but multiply that by everyone with a housing policy and that's an AWFUL LOT OF EXTRA PREMIUM being charged for no extra cover being given.

It's similar in concept as you point out to cars or contents, but for the Vast vast majority of people, their house is by far their largest asset and as rational individuals they can't afford not to ensure it's adequately insured.

An individual getting caught $1000 short on a car payout is going to have less of an issue than someone getting asked for $100k extra to rebuild their home.

The reasons given for moving to this non-expert, self declared, non binding (the insurance company will do their own costing IF you claim) rebuild estimates are distracting - they have in one fell swoop capped payouts on every housing policy to a strict function of premiums, and transferred all risk for unforecast costs to the individual - and away from the large companies where the averaging effects across hundreds/thousands of policies would take care of this.

Cheers - N

Which is why I estimated my rebuild at $1 million. I know I can rebuild a similar house for less than that for sure and it's easier to overpay the small premium difference between say $800k and $1 million now than to find $100k if I need to make up a shortfall.

Talkiet

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#977241 30-Jan-2014 11:38

Geektastic:
Talkiet:
bazzer: It's no different to any other insurance though is it? How much is my car worth, $10k or is it $11k? That's not that big a deal. How much are my contents worth $100k or are they $110k? Again no big deal. So why is the difference between $1M and $1.1M such a big deal to you?

Because the insurance companies are making money on the additional premiums ($100k in your example) and providing ZERO extra cover for that. On an individual basis it's no big deal, but multiply that by everyone with a housing policy and that's an AWFUL LOT OF EXTRA PREMIUM being charged for no extra cover being given.

It's similar in concept as you point out to cars or contents, but for the Vast vast majority of people, their house is by far their largest asset and as rational individuals they can't afford not to ensure it's adequately insured.

An individual getting caught $1000 short on a car payout is going to have less of an issue than someone getting asked for $100k extra to rebuild their home.

The reasons given for moving to this non-expert, self declared, non binding (the insurance company will do their own costing IF you claim) rebuild estimates are distracting - they have in one fell swoop capped payouts on every housing policy to a strict function of premiums, and transferred all risk for unforecast costs to the individual - and away from the large companies where the averaging effects across hundreds/thousands of policies would take care of this.

Cheers - N

Which is why I estimated my rebuild at $1 million. I know I can rebuild a similar house for less than that for sure and it's easier to overpay the small premium difference between say $800k and $1 million now than to find $100k if I need to make up a shortfall.

Completely agree, and it's what I've done too. Deliberately over-insure in the knowledge that I am paying premiums on a value that I will never be allowed to build to, even in the case of a total loss.

We're both acting rationally and giving the insurance company extra money that they'll never have to pay out on.

Cheers - N

Please note all comments are from my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.

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bazzer

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#977373 30-Jan-2014 13:29

Talkiet: Completely agree, and it's what I've done too. Deliberately over-insure in the knowledge that I am paying premiums on a value that I will never be allowed to build to, even in the case of a total loss.

We're both acting rationally and giving the insurance company extra money that they'll never have to pay out on.

Cheers - N

Except, your original statement was "So you are _ACTUALLY_ insured for less than you are paying for, but if you try and insure for the exact amount, there's a huge risk you could easily be 10's, MAYBE 100's of thousands out of pocket if you got your calculations wrong." I interpreted this to mean, in this example, there's a high likelihood (maybe you meant low likelihood, high impact risk?) that you could be $200k out of pocket if your calculations (i.e. $800k) are wrong. In any case, surely insuring for $1M is the right thing to do? Isn't that (one of) the risk(s) you're paying the "wasted" premium for? Isn't that why the marginal cost of the "extra" $200k cover is far less than the rest of the cover?

Talkiet

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#977386 30-Jan-2014 13:34

I don't think anything I will say will convince or change the opinion of anyone else on here, but I still believe that it was a dirty trick to transfer all the risk of inaccurate costings to customers.

Customers cannot average out the likely inaccuracies so will ALL have to pay more

Companies COULD average out the likely inaccuracies but have chosen not to.

The amount of cover doesn't change (on average) but the amount of money paid in premiums will increase.

Nice work if you can get it.

Cheers - N

Please note all comments are from my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.

bazzer

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#977429 30-Jan-2014 14:04

Talkiet: I don't think anything I will say will convince or change the opinion of anyone else on here, but I still believe that it was a dirty trick to transfer all the risk of inaccurate costings to customers.

Customers cannot average out the likely inaccuracies so will ALL have to pay more

Companies COULD average out the likely inaccuracies but have chosen not to.

The amount of cover doesn't change (on average) but the amount of money paid in premiums will increase.

Nice work if you can get it.

Cheers - N

I hear what you're saying, but transfer of risk is exactly what insurance is about, and finding the correct balance with cost. The other option was probably leaving all the risk with the insurers and raising premiums, so you end up in the same place anyway.

Talkiet

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#977434 30-Jan-2014 14:12

And I would accept the transfer of risk if there was an offsetting benefit. But they are having their cake and eating it too in this case.

They are insulating themselves from the risk, they are doing what the re-insurers are demanding AND they are getting customers to pay for it.

Customers are accepting more risk, and paying more to do it.

You can argue that this may have been to avoid an increase in premiums, but they have gone up a vast amount anyway... Mine have gone up 70-80%

Cheers - N

Please note all comments are from my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.

bazzer

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#977478 30-Jan-2014 14:45

Talkiet: Customers are accepting more risk, and paying more to do it.

Again, I have to disagree. They aren't doing both. Either they are paying more than they should or the are accepting the risk of under-insuring themselves, not both. By insuring your house for $200k more than you need to then you are, perhaps, paying more than you need to but you are not accepting more risk because, as you said, your house is over-insured so, as before, no worries about not having enough for a rebuild.

Talkiet

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#977500 30-Jan-2014 15:23

bazzer:
Talkiet: Customers are accepting more risk, and paying more to do it.

Again, I have to disagree. They aren't doing both. Either they are paying more than they should or the are accepting the risk of under-insuring themselves, not both. By insuring your house for $200k more than you need to then you are, perhaps, paying more than you need to but you are not accepting more risk because, as you said, your house is over-insured so, as before, no worries about not having enough for a rebuild.

As I said, I know I won't convince you..

But the amount I am overinsuring by is WORTHLESS. The insurance company, WHEN THEY ARE REQUIRED TO PAYOUT, will do their own assessment and pay out either the amount they determine, or the amount you insured for, whichever is the lesser.

I feel you are ok with this approach however, and consider it a reasonable approach by a private company. That's fine. The insurance companies make the rules so what can we do?

Cheers - N

Please note all comments are from my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.

bazzer

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#977529 30-Jan-2014 16:20

Talkiet:
bazzer:
Talkiet: Customers are accepting more risk, and paying more to do it.

Again, I have to disagree. They aren't doing both. Either they are paying more than they should or the are accepting the risk of under-insuring themselves, not both. By insuring your house for $200k more than you need to then you are, perhaps, paying more than you need to but you are not accepting more risk because, as you said, your house is over-insured so, as before, no worries about not having enough for a rebuild.

As I said, I know I won't convince you..

But the amount I am overinsuring by is WORTHLESS. The insurance company, WHEN THEY ARE REQUIRED TO PAYOUT, will do their own assessment and pay out either the amount they determine, or the amount you insured for, whichever is the lesser.

I feel you are ok with this approach however, and consider it a reasonable approach by a private company. That's fine. The insurance companies make the rules so what can we do?

Cheers - N

Dude, I get what you're saying and it's a fair point. I get that you're upset that you feel you have to insure your house for more than the real cost of rebuilding it. My only issue is you're making it sound like the insurance companies are taking it to you on both counts. I'm just saying, EITHER you insure for the amount you think your house will cost to rebuild (and hence the risk has been shifted onto you) OR you over-insure your house (and hence remove the risk, i.e. the same situation as before) and end up paying more. You're not accepting more risk AND paying more to do it (other than the fact that premiums will have gone up even for those that "under-insure" their houses but that's a function of Christchurch and the old type of cover that you're advocating).

Talkiet

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#977538 30-Jan-2014 16:31

I am accepting more risk and paying more since I am not insuring my house for a stupidly high amount. There's a chance that it will cost more to rebuild than I expect (and even a chance it will cost more than what I view as an over-insured amount) - That is where I am coming from with the accepting more risk and paying more. There's the accurate amount, then there's the over-insured amount, and then there's the exception cases where there's still a risk that the over-insured amount might not cover the rebuild. So even if I over-insure, there's a risk I'll be an exception case and still not have enough cover.

Individuals are the absolute worst people to ask to declare how much a house will cost to rebuild.

Asking individuals to spend $500-$1500 to get a professional estimate still sucks, given the insurance company will disregard that estimate if a claim is made.

The insurance companies, with access to more data than any individual, or any builder/estimator, are unquestionably the best people to do the estimates, and they won't - because making individuals do it means more $$$ for them.

This 'old cover' I am apparently advocating leverages the most knowledgable group with the best data to do the estimates. This 'new cover' makes the least experienced people responsible for it so yes, I guess I am advocating for a return to the 'old cover'

Cheers - N

Please note all comments are from my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.

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