Home insurance: Do you live in an area at high risk of natural disasters?

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108 posts

Master Geek

#2124833 13-Nov-2018 16:03

Wheelbarrow01:

JamesN:

Wellington, Kaikoura & Christchurch are classed high risk due to Earthquakes.

The major insurance companies are still not taking on new home insurance in the mentioned areas if the property is currently insured by another insurer.

This is due to insurance companies current capacity they have with there own re insurers, its the insurance version of Telcos buying a certain amount of capacity from the wholesalers.

From my understanding, Tower started doing the premiums like this earlier this year (I could be wrong though)

The low hazard areas are subsiding the high risk areas but now they are going the route, if you voluntarily live in a high risk natural disaster area then you pay for it,

Are you sure? I recently received my annual home policy renewal notice from State Insurance and noted that the premium for the coming year on my Christchurch property was going to be about 50% higher than last year - presumably due to their new risk profiling.

Not happy with this price gouging, I called AA Insurance and asked if they could do me a quote, and I must admit that I expected them to tell me to bugger off due to the property's location. However AA were happy to oblige, and after I answered all their questions and provided all my earthquake repair documentation, they were happy to take me on as a new customer with full cover on the same terms as my previous State policy(same sum insured, same excess, same or at least similar benefits). AA's premium quote was a similar price to State's - before they hiked their premium on me.

The cynic in me tends to think that some insurance companies are playing on the fact that most Christchurch people believe it is impossible or at least just too hard to change insurers. The reality of my experience proves otherwise. Yes it did take more than one phonecall, and yes I did have to provide evidence of quake repairs, but I spent less than one hour in total trying to organise it all, and I have saved about $600 a year going forward.

Yeah I am sure.

Partner works in insurance and we have bought a house in Wellington in last few months and had fun with the insurance.
On a property we lost out on, tried to get a quote with the company my partner works for and couldn't get it since there was already insurance on it with another company, being staff didnt help.

Also about 50cm corner of the land was classed as flood risk since it was next to a tiny creek (not exaggerating on the area classed as risk)

With AA Insurance, they probably have capacity which is how you got it, few of the smaller players you can move to as they are trying to up there business.

The bigger insurers will also turn you down if they have too much policies in 1 area.

i.e if they insure about 40% (this number is a example) of cuba st in Wellington, then they will not take on any more as its too much risk to them in case all/most cuba st gets wiped out from a earthquake.

All this stuff is what I have learnt from my partner over the years so I could not be understanding it fully.

mattwnz

20147 posts

Uber Geek

#2124835 13-Nov-2018 16:07

JamesN:

Also about 50cm corner of the land was classed as flood risk since it was next to a tiny creek (not exaggerating on the area classed as risk)

Flood maps have caused major problems for some. I know someone who couldn't get a building consent without expert reports, due to recent flood modeling placing it in a flood zone. But the map then got changed after they had paid for a report to be done, and it was then out of the flood zone.

JamesN

108 posts

Master Geek

#2124839 13-Nov-2018 16:17

mattwnz:

JamesN:

Also about 50cm corner of the land was classed as flood risk since it was next to a tiny creek (not exaggerating on the area classed as risk)

Flood maps have caused major problems for some. I know someone who couldn't get a building consent without expert reports, due to recent flood modeling placing it in a flood zone. But the map then got changed after they had paid for a report to be done, and it was then out of the flood zone.

Yeah its basically a straight line cutting across that section instead of following the slight creek curve, if they did the line correctly, it would not have been an issue.

Aredwood

3885 posts

Uber Geek

#2124844 13-Nov-2018 16:48

frednz:
Senecio:

All insurance is risk based. People in a higher risk category pay a higher premium.

- Car Insurance. A car garaged in Ponsonby will have a different premium to one parked on the road in South Auckland

- Health Insurance. A person with a known history of a family genetic disorder will pay a higher premium than others

- Travel Insurance. Someone who plans to skydive or off piste ski will pay a higher premium

I don't understand why you're objecting to the same principles being applied to housing insurance?

I don't think home insurance is as "black and white" as say, car insurance. If we could predict with absolute accuracy which areas of NZ are going to suffer future expensive natural disasters and when these are going to take place, then there might be some justification in charging people in these "high risk" areas more for home insurance.

But, as has been pointed out, the whole of NZ is prone to natural disasters in one way or another, so it's more equitable to share the cost of these equally, rather than charge some people more than others for home insurance based on where they live.

Young males get charged more for car insurance. Even though they can't change their age (and it is very difficult to change your gender).

Councils have topographic data and soil data. So they can assess flooding risk and risk of liquefaction in an earthquake.

Old brick houses should definitely pay more for insurance than wooden houses, and more modern houses. Especially those double layer brick houses. As the old bricks are structural (as opposed to just a cladding).

The EQC payout cap should be raised to at least $500K. Even $300K is still way too low. And they need to introduce mandatory "EQC Lite" insurance, that is paid for via rates. As whenever there is a major natural disaster, the government pays out to those who don't have insurance.

So why bother getting your own insurance? As the government will help you if a major natural disaster occurs.

alasta

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#2124846 13-Nov-2018 16:55

mattwnz:

DjShadow:

We managed to get a new House policy via Aon/Vero at the start of March in Lower hutt, AA Insurance were happy to take on new policies too but just needed a nod from an senior underwriter first.

I am not aware of new houses not being able to get insurance?

I would assume that brand new houses would be able to get insurance, otherwise nothing would be getting built in the Wellington region!

mattwnz

20147 posts

Uber Geek

#2124945 13-Nov-2018 19:09

Aredwood:

Old brick houses should definitely pay more for insurance than wooden houses, and more modern houses. Especially those double layer brick houses. As the old bricks are structural (as opposed to just a cladding).

The EQC payout cap should be raised to at least $500K. Even $300K is still way too low. And they need to introduce mandatory "EQC Lite" insurance, that is paid for via rates. As whenever there is a major natural disaster, the government pays out to those who don't have insurance.

So why bother getting your own insurance? As the government will help you if a major natural disaster occurs.

Yes the EQC cap certainly should be raised, and that maybe what will help with this.

If they went down that track of charging people with more risky types of houses more, that would make sense in terms of being fair of the risks and costs associated with more quake prone buildings. But that could also mean that banks would be vulnerable in terms of the building value dropping (if the property has a mortgage on it) compared to others in the area, if insurance is too expensive to be affordable. But then again it sort of negates the whole point of insurance, vs just self insuring. But IMO any brick building, even brick veneer is potentially more at risk of some damage than some timber clad buildings. You can end up getting step fractures in brick and that can be an expensive repair. So should people who have timber cladding pay less than people with brick veneer, even if they are new houses?
Personally I liked the current system where everyone covered one another with similar premiums no matter where you live.It is only going to get worse with global warming and, as there will also be areas that will be more prone to cyclones and flooding etc, and people may have exclusions for certain types of natural disaster. I think it is probably about time for the government to step in and setup 'Kiwi Insure', as a government run insurance company, which will also at least create more competition in the market.

driller2000

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#2125075 13-Nov-2018 21:44

Yes. 100%.

And the risks can and are quantified statistically whether that be EQ, flooding, coastal inundation, storm surge etc.

And no way should those in lower risk areas subsidise those in higher risk areas.

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Fred99

13684 posts

Uber Geek

#2125130 13-Nov-2018 23:00

driller2000:

Yes. 100%.

And the risks can and are quantified statistically whether that be EQ, flooding, coastal inundation, storm surge etc.

And no way should those in lower risk areas subsidise those in higher risk areas.

Except they really don't have much of a clue.

Doesn't matter though, because in the aftermath of "unexpected" natural disasters, insurance company revenues always rise as they hike premiums.

It's a casino where the house wins.

Bluntj

556 posts

Ultimate Geek

#2125244 14-Nov-2018 07:34

driller2000:

Yes. 100%.

And the risks can and are quantified statistically whether that be EQ, flooding, coastal inundation, storm surge etc.

And no way should those in lower risk areas subsidise those in higher risk areas.

You clearly arent thinking of the larger picture where only one third of the Country can afford to pay so when a disaster strikes the State has no choice but to pay out for the uninsured.

The current Government has expressed serious concern about the new risk based models being peddled out by Insurance Co's and has put them on notice.

driller2000

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#2125250 14-Nov-2018 08:05

Fred99:

driller2000:

Yes. 100%.

And the risks can and are quantified statistically whether that be EQ, flooding, coastal inundation, storm surge etc.

And no way should those in lower risk areas subsidise those in higher risk areas.

Except they really don't have much of a clue.

Doesn't matter though, because in the aftermath of "unexpected" natural disasters, insurance company revenues always rise as they hike premiums.

It's a casino where the house wins.

As a civil engineer I deal with risk based assessments for hazards on a regular basis - incl:

for flooding (as it pertains to flood modelling, risk assessments, climate change adaption, storm surge and coastal hazard mapping)
for earthquakes (as it pertains to risk classification by area / historic return periods and how these are applied via loading codes)
geotechnical risks (again via investigation and specific design and how this is applied to specific properties via hazard maps)
and even wind risk for (again applied via loading codes.)

So to those who say they/we don't know - we do.

PS: And this info is also accessed by insurance companies when they assess risks and premiums - in conjunction with historic events and claims.

driller2000

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#2125252 14-Nov-2018 08:09

Bluntj:

driller2000:

Yes. 100%.

And the risks can and are quantified statistically whether that be EQ, flooding, coastal inundation, storm surge etc.

And no way should those in lower risk areas subsidise those in higher risk areas.

You clearly arent thinking of the larger picture where only one third of the Country can afford to pay so when a disaster strikes the State has no choice but to pay out for the uninsured.

The current Government has expressed serious concern about the new risk based models being peddled out by Insurance Co's and has put them on notice.

Not MY problem if others choose to live in a flood plain.

As for the Govt putting insurance companies on notice - whatever - they are a business - we are not forced to buy from them - either party can walk.

But if we want to socialise all such risks - then we will need to increase funding and caps via the likes of EQC - but that doesn't change my POV that that is not an equitable approach.

tdgeek

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#2125260 14-Nov-2018 08:20

frednz:

Thanks James, well what about Hawkes Bay, New Plymouth, Nelson, the West Coast of the South Island etc etc, couldn't they also be regarded as high risk areas?

When you say "if you voluntarily live in a high risk natural disaster area", some people wouldn't have the option of shifting to a so-called "safe" area because of work and family ties etc. You might go to all the trouble to shift to a "safe" area and then suffer a major earthquake, flood or volcanic event!

Let's face it, the whole of NZ is vulnerable to earthquakes and other natural disasters, so it seems ridiculous to me to charge people in Wellington, Kaikoura and Christchurch possibly as much as 15% more for their home insurance than people who live elsewhere.

What about Taupo, isn't Lake Taupo due to erupt before too long, I wonder if Taupo is regarded as a high risk area?

I agree with the desire to charge more for higher risk. BUT. Earthquakes run in cycles, once pressure is released it takes a long time for the next cycle. IIRC ChCh occurred 10,000 years ago. Alpine Fault is every 300 years, and so on. You could argue that ChCh, Kaikoura, Wellington should have lower premiums.

The deep south has bigger EQ's than anywhere else. Alpine Fault is due now, which could heavily affect the deep south, up to Welly, and everything in between. So South Island is high risk. Many EQ's have hit mid North Island, Napier, Edgecumbe, etc, so rule out south to mid N.I. AKL has volcanoes, plus it might well be an EQ area.

Might be better off to look at areas of low risk, maybe Far North? Thats all I can imagine is lower risk.

Better to charge based on building risk.

tdgeek

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#2125262 14-Nov-2018 08:24

frednz:

And just because Christchurch has had some big earthquakes in recent years, does this mean that this area is likely to suffer more earthquakes in future than other areas of NZ?

Less I would say. The faults that let go, have let go, they are now very low risk now, if not no risk. There might be others, but that also applies to all of NZ

nickb800

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#2125263 14-Nov-2018 08:27

There's clearly different kinds of risks with different potential mitigation. It's good to discourage folk building on the worst of the worst land - on a flood plain, highly liquefaction prone estuary or eroding coast line. But discouraging investment in all of Wellington because of earthquakes or all of Auckland because of volcanoes, is probably not great for NZ in the long run - and that's where socializing risk can be useful.

We have EQC because as a society we realise that we are going to natural disasters and consider it undesirable for people to be made homeless and financially ruined by them. It also helps the govt in the long run - compare to the US where earthquake insurance is basically unaffordable, and FEMA gives out grants to help folk repair their houses. Government payouts for the red zone in Chch were a very different story, as it involved shutting down utilities and closing streets (eventually...).

However, having some price signals through insurance is a good thing too - it discourages investment in riskier spots - like Hector in the West Coast, or IMHO Petone, Wellington. Through the fact that the EQC cap hasn't moved with inflation, our natural disaster insurance is increasingly risk based. The original cap of $100,000 was set when the average house price was below that level, and therefore most houses would be completely covered by flat rate, universal insurance. Even if/when EQC raises the cap to $300,000 (which will need a govt cash injection or large premium increase as their funds have been almost completely depleted by Christchurch), this probably won't cover the sum insured for most people - which means that people would still be more exposed to risk based premiums than they were in 1990. Since then, our ability to understand and model risks on a property-by-property scale has improved a lot too.

tdgeek

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#2125264 14-Nov-2018 08:29

From EQC

The EQC premium on home and contents insurance increases on 1 November, in line with the Budget 2017 announcement on 25 May 2017.

The total EQC premium increases to a maximum $276 including GST annually, up from a maximum $207. The EQC premium is calculated at 20 cents per $100 of cover on the first $100,000 of home cover and on the first $20,000 of contents cover.

The EQC premium increase will help rebuild the Natural Disaster Fund, depleted as EQC settles its liabilities arising from the Canterbury and Kaikoura earthquakes. The Natural Disaster Fund, along with EQC's current $4.8 billion reinsurance programme supported by the underlying Crown guarantee, are in place primarily to meet the potential costs of large-scale natural hazard events such as the Canterbury and Kaikoura earthquakes.

The increase also ensures EQC continues to provide cover for smaller scale natural disasters, such as the recent Edgecumbe floods, and invests in research into natural hazard risks and potential mitigation.

Its $5 a week maximum. Double it, triple it, quadruple it. Make EQC the 100% natural disaster insurance company, leaving other insurers devoid of that risk and they can drop their premiums a little, ideally that would cover most of a small (but large %) EQC premium increase

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