Rarely adequate home insurance – Good returns

Nearly a third (30%) of residential property owners and investors surveyed are not convinced that their property is properly insured.

Monday, November 14, 2022, 8:56 a.m.

by Sally Lindsay

A new survey by property data and analytics firm CoreLogic provides a detailed look at the well-established problem of homeowners underinsurance in the country, amid high construction cost inflation, rising premiums insurance and increased pressure on the cost of living.
The investigation revealed:

  • Almost a third (30%) of respondents are not convinced that their property is properly insured, with 91% believing this is due to a lack of knowledge.
  • A quarter (26%) of respondents with full reconstruction coverage are not confident that they are fully insured for the reconstruction of their home.
  • More than a third (38%) of respondents do not know the amount of their sum insured on their policy.
  • The average New Zealand homeowner last reviewed their home insurance cover almost 2.5 years ago.
  • Although one in 10 respondents (8%) chose their current insurance because of a low deductible, only two-thirds (65%) know the amount of their insurance deductible.

Simone Moors, country manager for CoreLogic, said while having a high home insurance rate of 96-98% across the market is a good thing, it can reinforce a false sense of protection.

“People pay for the insurance, but if the sum insured is insufficient for the cost of reconstruction, they are not fully covered and may only find out at the worst time.”

Moors says even the most risk-averse consumers can quickly become underinsured. “This plays into the trust issue identified in the survey, with a lack of understanding of rebuilding/building costs (69%) or the cost of a rebuild (64%) being the two most common reasons why respondents do not feel confident in their property is sufficiently insured.

She says this is not just a risk for the consumer, but for mortgage owners there is a hidden risk in the balance sheets of New Zealand banks.

CoreLogic’s Cordell Construction Cost Index for the third quarter of this year shows the indexed cost to build a standard 200m2 three-bedroom, two-bathroom brick-and-tile house increased by 3.4 % in the quarter, bringing annual growth to 9.6%, the largest increase since the index began in late 2012.

Moors says around three in five (63%) investors and homeowners insure their property based on some “official” or recommended method (a calculator on an insurer’s website, or a rebuild estimate or appraisal insurance from a registered appraiser or quantity surveyor), 22% used the average property value in the area to decide how much they needed to insure their property, while 12% relied on a best guess”.

“Respondents believe that over the past 12 months the cost of building a new home has increased by an average of 45%, with around a third (36%) believing it has increased by more than 50%. “

Although respondents estimate that property values ​​have increased by 31% and reconstruction costs have increased by 41% in the last 12 months, more than half (56%) have not reviewed their insurance cover. homeowners insurance over the past year, putting them at risk of underinsurance, Moors says. .

weather effects

Matthew Walker, head of CoreLogic insurance solutions, says the increase in frequency and intensity of weather events related to climate change and rising construction costs is a big problem.

“Coupled with the continued risk of earthquakes, the survey data and information indicates that many policyholders are at high risk, most of them unintentionally – not only to the loss of their homes, but to serious harm. financial, since for most owners, their property is the foundation of their wealth.

Home insurance rebalancing

A white paper on insurance issues from CoreLogic explores and quantifies this insurance gap and identifies possible solutions for insurers, their partners, and anyone connected or invested in the residential real estate industry. According to Walker, the research, insights and solutions can be applied to rebalance home insurance policies at the consumer level, inform insurers’ strategies to support policyholders and help close the underinsurance gap.

Other findings from the insurance investigation include:

  • Almost half (49%) of New Zealand homeowners who have reviewed their home insurance usually increase their insurance when they review their level of cover, while 40% of respondents leave it unchanged and 2% reduce it.
  • Men are more likely to increase their level of coverage when reviewing it than women (men 53%; women 43%), while baby boomers are the generation most likely to increase their level of coverage when they examine it (61%; national average 49%).
  • More than half (52%) of respondents used guidance provided by their insurer when they purchased their policy to determine the insured amount or total construction replacement coverage.
  • Millennials are the most likely to use advice provided by their insurer (57%; Gen Z 47%; Gen X 49%; baby boomers 52%).
  • More than half (52%) of respondents considered the current market value of their property when deciding their level of coverage, while 24% considered their current income/budget and 11% recent environmental factors.
  • One in six (17%) New Zealand homeowners automatically renew their cover.

Keywords: insurance

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