On the 24th of August, Radio New Zealand reported that changes are afoot for home insurance policies.
Presently, the New Zealand insurance industry is looking at reverting from replacement-value policies back to fixed-cover policies (that latter being the common cover some 20 years ago). Future home insurance cover will also likely be based on Government valuations. Insurance Council Chief Executive Chris Ryan explains that these changes will provide reinsurers more clarity and will likely become common for new and renewed policies in the next 12-24 months.
What does this mean to Property Investors?
Two issues jump out at us straight away:
- That Government valuations often do not reflect an accurate value for the property in order for a complete rebuild;
- That more costs will likely be involved for investors to ensure that policies are fixed at the right price.
Consumer New Zealand Chief Executive Sue Chetwin warns homeowners to be careful what the fixed price is set to. “If you’ve got a more highly-speced house or an old or unusual house that might mean you have to get a quantity surveyor in before you take out your insurance because you will be wanting to make sure the price that you fix it at is actually what you can replace it for.” Lewis Donaldson, President of the Canterbury Property Investors’ Association, agrees with Ms Chetwin that fixed-cover policies adds a layer of complication, “If things are done correctly there shouldn’t be too much of an issue. The only problem is when houses are underinsured.”
Nevertheless, Mr Donaldson reminds investors to be up to date with their insurance as not to prejudice future (re)financing.
What should Property Investors do?
If this move takes place it will not be straight forward for people. The effect of this strategy will be to move the responsibility from the insurer to the customer to set the value of their property. People need to be aware that building costs can rise without the owner being aware and they will end up under insured. In a worst case scenario they will only be able to rebuild part of their property!!
I would suggest the following:
- Find a Insurance company that will rebuild based on size of the house.
- If this is not possible, Landlords will need to obtain and Property Insurance Valuation, this will provide them with a realist value for rebuilding their property.
- Be very wary of Government valuations as they are frequently incorrect. This was the case in the past, people ended up being under insured and hence the change to the current position of rebuilding based on the size of the property.