For what its worth
The massive volume of home under insurance suggests consumer confusion.
Emerging consumer data confirms what those in the construction cost field have been warning – that the majority of insured homeowners do not have sufficient cover for full rebuild in the event of disaster.
Consumer NZ’s latest report confirms that two thirds of Kiwi homeowners are underinsured as a result of changes to home insurance guidelines that, among other things, require owners to specify a rebuild sum for which their property is insured.
In November 2013, Construction Cost Consultants became the first organisation to raise the alarm over the vulnerability of homeowners in the wake of the new guidelines’ introduction, noting that at the time around 93 percent of people were opting for the default sum provided by their insurer and that the consequent rate of underinsurance could be estimated as $167 billion (at minimum) of a total housing value of more than $717 billion.
Though the rate of people insuring for the default sum has dropped since late last year, the risk shared by homeowners, banks and insurers remains high.
Banks and insurers have themselves acknowledged this risk, and CCC founder and CEO, Andy Thomson reports that the major companies CCC deals with have declared their intentions to increase the base rates on which default sums are calculated.
However, this is not resulting in widespread change to consumer behaviour. Thomson says CCC’s experience is that even when homeowners are warned their cover is too low, they are not increasing the sum insured for their property, apparently not trusting the data supplied.
Another possible impediment, Thomson notes, is the onslaught of new terminology (rebuild estimate, gross floor area, construction inflation) which may be confusing to many.
In a bid to extend the spread of sum insured accuracy across the New Zealand market, CCC is developing relationships with banks and insurers and lobbying government and other interest groups to bring regulation to the quantity surveying sector.
Quantity surveyors are trained extensively in the measurement and costing of materials and products. At present, there is no regulation to prevent insufficiently skilled, dishonest operators producing rebuild reports that are incomplete and contain inaccurate figures for insurance.
Mr Thomson says that as financial services providers change their calculations to reduce the risk of underinsurance, the “cowboy” operators are the next big risk the industry needs to manage, and a degree of regulation should
be introduced comparable to legislation of financial services companies and advisers following the finance company sector collapse.