House Rebuild Valuation for Insurance

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Master Geek
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Reply # 878105 14-Aug-2013 13:49

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Anyone know which party is responsible to cover the inflationary costs of a rebuild when your insurance company takes years to act on a claim?

As many have seen, it's proving difficult to come up with an accurate value for today's market... And it would appear that we'll all need to allow for 3+ years of building cost increases on top of it all!

Also, if you've got an outstanding claim in the hundreds of thousands already, should you still be paying your full insurance premium?

minimoke

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Ultimate Geek
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Reply # 878134 14-Aug-2013 14:53

onebytemike: Anyone know which party is responsible to cover the inflationary costs of a rebuild when your insurance company takes years to act on a claim?

You are. If you insure for $1m at the start of the periods and your house costs $1.1 to rebuild at the end of the period you wil only get $1m. Some insurers may provide some added cover for an Inflation adjustement - check your policy

As many have seen, it's proving difficult to come up with an accurate value for today's market... And it would appear that we'll all need to allow for 3+ years of building cost increases on top of it all!

/ We may as well get our heads around the fact there is no such thing as an accuarate figure. Don't stress it - getting reasonbaly close wil just have to do.

Also, if you've got an outstanding claim in the hundreds of thousands already, should you still be paying your full insurance premium?

Thats me - and yes I am still paying my premiums. Saving my fight through the Ombusdsman for later though.

Elpie

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Reply # 878183 14-Aug-2013 16:07

mattwnz:
There are some things, like rimu that would be expensive to replace, although rimu is now imported so not too hard to source. But there would be some things on your old house that would be far inferior to a new house, such as lack of EQ bracing to current standards, lack of insualtion up to current standards, double glazing etc. New wiring and plumbing, where old houses may be in need or replacement. Let alone all the deferred maintenance that is stored up in most homes.

Those are the same kind of assumptions that insurance companies are making with their assessments. In my case, all plumbing, wiring, cabling, insulation (both underfloor, ceiling and walls where mandated), bracing, etc has been redone within the last few years. Bathrooms are both new, as is the kitchen. At this point in time it exceeds current building standards. However, based on floor area and age alone the insurance company initially valued a rebuild at $475k. They were kind enough, however, to point out that the value they provided on my policy renewal forms could potentially only cover less than half the value on the house. I now have temporary cover and must get a surveyor in to quantify the actual costs before my temp cover expires at the end of the month.

Given that I'm looking at over $3,000 to get someone in, and my policy is costing me $2,800, and I don't have $5k+ to spare, its not looking good for me. I've just spent two hours talking to insurance companies and am feeling pretty gutted at the moment.

Elpie

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Reply # 878191 14-Aug-2013 16:11

I hadn't realised how much insurance costs can vary around the country until going through this exercise. According to AMI, Palmerston North is one of the highest risks in the country and we have to pay accordingly. With 7 fault lines, being alongside the Wellington fault, being close enough to the central plateau to be affected by any major eruption, and the flow-on effects of the 2004 Manawatu floods, we are being stung hard.

Straw/camel's back. I'm finishing off the renovations then selling up and getting out.

minimoke

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Ultimate Geek
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Reply # 878207 14-Aug-2013 16:40

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Elpie: I hadn't realised how much insurance costs can vary around the country until going through this exercise. According to AMI, Palmerston North is one of the highest risks in the country and we have to pay accordingly. With 7 fault lines, being alongside the Wellington fault, being close enough to the central plateau to be affected by any major eruption, and the flow-on effects of the 2004 Manawatu floods, we are being stung hard.

Straw/camel's back. I'm finishing off the renovations then selling up and getting out.

Those risks have been there for ever so I’m not sure why the insurance company should be making it hard for you now. The only difference today is that the insurance company wants to know what’s its maximum exposure to that risk is. I wouldn’t have thought it would make much difference to them if you insured for $400k or $600k as long as they get their premium and give you cover for what you have.

Don’t let them bull sh@t you. You may be next to a load of fault lines but they will know what the expected rupture magnitude is likely to be. It might be that those faults will only ever generate, at most a Mag 6 earthquake event which will not destroy your house. Ground surveys will know the risk of liquefaction and your neighborhood turning into a “red zone” You will know if your house is likely to fall off a hill. Even if you had a Napier type event chances are your house will stay standing, if not a bit bent.

If you live right next to the river there’s a chance you will get flooded. If you are 50 meters above chances are remote.

Volcanoes - that’s not going to destroy your house. Cover it in toxic ash maybe but you'll still have a standing house.

Insurance now is about destructive events. With our building codes they are rare – but not inconceivable. Don’t lose sight of the need to have partial loss / damage properly covered.

Geektastic

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Reply # 878666 15-Aug-2013 11:42

StarBlazer: Okay, so it's time to face the financial music as my insurance renewal has just come through.

We have a 180m2 house in Lower Hutt and the premium has leapt up - like I guess for most people.

The question is the "valuation". AMI have proposed a rebuild cost of $454,000 - the online calculator comes out at $600,000 which is a big difference and will no doubt push up my premiums even further. I don't want to come up short on the valuation but then I don't want to seriously overpay on the premiums!

So I'd like to get a professional rebuild valuation.

Can anyone recommend someone in the Wellington/Lower Hutt region?

What are your thoughts?

Just move the business to FMG who will still insure on the old 'whatever it costs basis'.

mattwnz

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Reply # 878672 15-Aug-2013 11:49

Wasn't the whole reason for state owned insurance, to average out the risk across the entire country? It appears insurance companies have now changed the playing field, and people seem to be allowing them to do this.

PaulBags

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Reply # 878681 15-Aug-2013 12:02

mattwnz: Wasn't the whole reason for state owned insurance, to average out the risk across the entire country? It appears insurance companies have now changed the playing field, and people seem to be allowing them to do this.

EQC only pays up to $100,000 (mostly only to, and/or in salaries to, their mates), [edit] the rest is payable by insurence companies [/edit] so I can see why insurance companies would want to localise factors when considering premiums; evil as this may be. And tenuous as it may be, given that having several known fault lines in an area effectively means nothing when the country is spider webbed with unknown fault lines and that no-one can remotely predict earthquakes or even their likelihood.

Also if that was the only/main reason for state owned and mandatory insurance it's not good enough. No-one should be denied their choice of insurer simply because the government disagrees with their choice, and as for the practises of the insurers surely it would be better to legislate their behaviour than to outlaw them; which is effectively what has been done with the natural disaster portion of the insurance sector.

Am I right that EQC, or it's precursor, was actually created during one of the world wars to cover war damage; and was later extended to cover natural disasters?

minimoke

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Reply # 878705 15-Aug-2013 12:24

mattwnz: Wasn't the whole reason for state owned insurance, to average out the risk across the entire country? It appears insurance companies have now changed the playing field, and people seem to be allowing them to do this.

Insurance is a bit like a pyramid scheme - or perhaps this is not the best analogy.

At the bottom of the pile you have your little local insurer. For example AMI had pretty much the Christchurch residential market and not much else (which is why they went bust – too much exposure to a set of localized extreme events). Or there are people that insure farmers, or doctors, or churches or councils.

Those insurance companies then reinsure with a bigger insurer. And those reinsure with bigger ones and so it goes on until you end up at the very top of the pile with companies like Swiss Re, Hannover (note the two "n's) and we've probably heard of Lloyds.

The only thing insurance companies have really changed is their desire to cap their risk exposure. Makes perfect sense to me. And we can expect to see larger gaps where we will be liable for the first part of the risk through larger excesses. And I reckon it won’t be long before land won’t be insured by EQC.

Geektastic

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Reply # 878746 15-Aug-2013 12:49

NZ insurers are pretty odd in their attitude.

In the UK you can insure anything pretty much - you just go to Lloyds and get someone to ask around the syndicates there if the mainstream people won't play.

I used to insure with a specialist house insurer there (simply because my father did and I got a discount) and I was burgled. They sent a man in a suit to my house (2 hours from London!) who had a cup of tea, looked at the brief Police report and my claim, told me it was all in order and whipped out the company cheque book and wrote me a cheque for what was then about $20,000 equivalent on the spot, said good afternoon and went back to his office!

In NZ they often wriggle and squirm and try overly hard not to pay out what they should, inventing all kinds of usually pretty weak excuses not to. Our first experience of that was when we shipped our container of house contents over from the UK 10 years ago. The NZ insurers had their lawyers write us a fairly nasty letter (after the loss adjuster had been and inspected the damage from shipping and approved the claim of $25,000) refusing to pay because we had allegedly not told them that the goods were in commercial storage before being shipped.

We produced email correspondence with their broker in which we had done exactly that in black and white, as well as the page of the proposal form where under the section that said "Address Where Goods Currently Kept" we had written "Safe Store Limited"!

I pointed out that it was really no concern of mine whether their broker failed to inform them of things we had openly disclosed and in the end they grudgingly paid us $15,000.

Since then I have had numerous similar instances following pretty routine claims - or instances where they have simply refused the business.

I do wish we had better access to more sophisticated markets such as Lloyds, I must say.

mattwnz

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Reply # 878765 15-Aug-2013 13:16

minimoke: And I reckon it won’t be long before land won’t be insured by EQC.

I doubt we would see that happen, mainly because of banks high exposure to property in NZ. It would have the potential to cause property prices to plummet if people can't get insurance for their land. EQC is basically just the government, and the government are basically now fully funding it, as it has run out of money after the chch eqs's. The government relly has to protect the people , if the free market isn't doing it.

minimoke

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Ultimate Geek
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Reply # 878804 15-Aug-2013 13:50

mattwnz:
minimoke: And I reckon it won’t be long before land won’t be insured by EQC.

I doubt we would see that happen, mainly because of banks high exposure to property in NZ. It would have the potential to cause property prices to plummet if people can't get insurance for their land. EQC is basically just the government, and the government are basically now fully funding it, as it has run out of money after the chch eqs's. The government relly has to protect the people , if the free market isn't doing it.

I’m not sure I agree. At the moment land insurance is not compulsory. The only compulsive aspect is that if you have house insurance, land comes part of the package. If you choose not to have house insurance you have no land insurance.

The banks would just insist properly owners with mortgages had both land and house insurance.

I agree the government is there to protect the people - to the extent of criminal activity and the like. But there should be no requirement for a government to dictate a person’s appetite for risk. If I have a healthy appetite and decide not to insure, have the benefit of paying no premiums, then I should also be prepared to pay for damage if an event occurs. Why would I expect the tax payer to step in?

Elpie

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Reply # 878956 15-Aug-2013 16:59

minimoke:
The only thing insurance companies have really changed is their desire to cap their risk exposure. Makes perfect sense to me. And we can expect to see larger gaps where we will be liable for the first part of the risk through larger excesses. And I reckon it won’t be long before land won’t be insured by EQC.

It wasn't an insurance company decision either. The reinsurers, all based overseas, are the ones dictating this change.

it's easy to forget here that our insurance market is also affected by overseas events. The Brisbane floods have had a flow-on effect to NZ too (pun intended).

I think my next house will be a cardboard box or something on wheels. Phooey to home ownership.

StarBlazer

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Reply # 878957 15-Aug-2013 17:03

OK - So I went to see AMI to ask some questions - these are all based on the assumption of a total loss;

What happens if I insure at the lowest amount - which happens to be the estimate from AMI?
They send round they assessor, contact a building company and come back with a figure. If that figure is more than the sum insured then I have the option to either put my own money on the table or have the house built to budget - which could be either a smaller property or with less expensive materials/features. If I were to attempt to take insurance on an amount which is grossly under the estimate then they will refuse to issue a policy on the property.

What happens if I insure at the highest amount $600000 according to the online calculator?
The same as the previous answer, however they will only pay for what it actually costs to build the house to the same standard/specification but obviously at the current building regulations.

Why would I not get the full amount insured?
It's not that type of policy. What I am comparing with is an agreed amount insurance which currently is only offered on cars. Most content and vehicle policies are an insured maximum value where they will pay up to that value to replace or repair where it is economical to do so. If my $1000 camera got broken, they would replace it using their network of buyers/vendors which may cost them $700 but I would still end up with a replacement of what I had. The same applies to the house. If I have special features that I would like to keep - document them - but include what that might cost to replace in the sum insured.

What's the difference in the policy cost between the values?
$454k = $1116; $520k = $1207; $600k = $1307 - these are based on a $700 excess
Change that to a $1200 excess; the $520k = $1160 and $600k = $1254

How much to spread the costs?
An extra 10% whether quarterly or monthly.

She did suggest that getting a private valuation is an option, however she conceded when questioned that they will still only be a very educated guess.

I must stress to each and every person reading this that the information above is specific to my insurance through AMI - if you have any questions or doubts you should contact your own insurance company to confirm their take on the matter. I will be putting the following summary in an email to AMI to validate what the advisor told me.

I hope this helps :)

Procrastination eventually pays off.

Geektastic

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Reply # 878964 15-Aug-2013 17:18

StarBlazer: OK - So I went to see AMI to ask some questions - these are all based on the assumption of a total loss;

What happens if I insure at the lowest amount - which happens to be the estimate from AMI?
They send round they assessor, contact a building company and come back with a figure. If that figure is more than the sum insured then I have the option to either put my own money on the table or have the house built to budget - which could be either a smaller property or with less expensive materials/features. If I were to attempt to take insurance on an amount which is grossly under the estimate then they will refuse to issue a policy on the property.

What happens if I insure at the highest amount $600000 according to the online calculator?
The same as the previous answer, however they will only pay for what it actually costs to build the house to the same standard/specification but obviously at the current building regulations.

Why would I not get the full amount insured?
It's not that type of policy. What I am comparing with is an agreed amount insurance which currently is only offered on cars. Most content and vehicle policies are an insured maximum value where they will pay up to that value to replace or repair where it is economical to do so. If my $1000 camera got broken, they would replace it using their network of buyers/vendors which may cost them $700 but I would still end up with a replacement of what I had. The same applies to the house. If I have special features that I would like to keep - document them - but include what that might cost to replace in the sum insured.

What's the difference in the policy cost between the values?
$454k = $1116; $520k = $1207; $600k = $1307 - these are based on a $700 excess
Change that to a $1200 excess; the $520k = $1160 and $600k = $1254

How much to spread the costs?
An extra 10% whether quarterly or monthly.

She did suggest that getting a private valuation is an option, however she conceded when questioned that they will still only be a very educated guess.

I must stress to each and every person reading this that the information above is specific to my insurance through AMI - if you have any questions or doubts you should contact your own insurance company to confirm their take on the matter. I will be putting the following summary in an email to AMI to validate what the advisor told me.

I hope this helps :)

Do note that if you want a policy where they pay out the full loss without the limit (ie the way it used to be pre the recent changes) both FMG and their medical equivalent will issue policies on that basis. Neither requires you to be a farmer or a doctor.

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