What do weather events caused by climate change mean for insurance cover? Fair Go's Garth Bray explains the concerns and what householders need to do to reduce their risk.
Our changing climate is testing us. Not just in finding a leak in a roof, or a drain that's prone to blocking or flooding - it's also exposing any gaps in our insurance cover.
At the same time, the insurance industry is under mounting pressure as it makes growing payouts. Extreme weather had been costing anywhere from $270-360 million a year in claims, according to the Insurance Council. Then last year blew the lid off that figure.
By June 2023 the Insurance Council had put the costs of the Auckland Anniversary weekend floods, Cyclone Gabrielle, and more bad weather in February and May at well over $3.6 billion – ten times what extreme weather claims had cost a year earlier.
The good news is at least most homeowners are paying something into the insurance pot that covers the risk for all of us when people need payouts.
"New Zealand has consistently high levels of uptake rates for residential property insurance of more than 90%, which compares favourably to other countries," according to an Insurance Council spokesperson, citing this report from global insurer Lloyds.
Risk of being under-insured
But into this perfect storm blows another front – the rising cost of rebuilding.
“In the last four years, roughly 20-30 per cent up, is what I'm seeing,” says Andy Thomson from Construction Cost Consultants, meaning greater risk homeowners will be under-insured.
If disaster strikes, all that can add up to a gap between what it costs to fix the damage done by our unpredictable climate, and what an insurer says it'll pay.
Closing that gap means preparing now. Starting with working out how much insurance you need. Once upon a time your insurer said, basically you're covered for whatever it takes.
Then the very costly Canterbury earthquakes changed that. These days, you typically have to nominate upfront how much it would cost to rebuild your home.
Treasury looked at that change and was worried to find in this report that "up to 85 per cent of homes could be under-insured by an average of 28 per cent."
In 2016, it estimated NZ homes were under-insured by a total of $184 billion (yes that's billions, not millions) but added that this was perhaps an over-estimate, since a major disaster like an earthquake would likely strike just one location, limiting the costs. Eight years later, and after the complex chaos of Cyclone Gabrielle, that might be due a rethink.
For a homeowner, basing the rebuild cost on the purchase price can be a trap. Often it reflects the value of the land, not what is on it.
Based on his company’s assessments, Thomson says it’s all too common to buy a new build, in a new suburb, from a big home-building franchise only to learn that the true cost of rebuilding that same house would be 25 per cent higher. This is because of rising costs and what would be a one-off construction project instead of a part of a big development.
Online calculators' limits
There are also generic online calculators that people can use to get a rough guide for the rebuild costs, but they’re only as good as what’s put into them.
It may be smarter to hire an expert - a quantity surveyor or a professional valuer.
The right insurance valuation report can be well worth the $600+ cost. Paying that might sound like a luxury - especially in tough times - but getting it wrong could mean buying too much insurance or worse, too little. It also pays to shop around for assessors as this story shows.
You can also ask some 'what ifs' to plug the potential insurance gap.
Ask your insurer what if the house were fine - but the land has been affected, or the council has declared the area unsafe to occupy. Watch the news and ask your insurer - if that was us, would that be covered?
Your land isn't covered
Land is probably the most valuable part of your property but it’s not covered by home insurance, so while you are at it, check if your property faces a known risk. Since Cyclone Gabrielle, councils are making land information easier to find and read. Yours may have a website, with interactive maps.
Toka Tū Ake EQC covers some, but not always all, of the cost of damage to land from a natural hazards or disasters like floods, earthquakes, slips and so-on. Its site shows the locations of more than 360,000 claims it has settled since 1997.
Zoom in and click on any of the green dots on the map and it tells you where, when and roughly why there was a problem, just not how much was paid out and to whom.
If there are a lot of green dots on the map in your neighbourhood, you might want to check your own risk more carefully.
Fair Go’s Garth Bray looks at extreme events related to climate change, insurance and the risks for your home. (Source: Breakfast)
Low-ball offers
Fair Go also deals with complaints long after disaster where a homeowner has strong grounds for thinking they’ve received a low-ball offer to settle. Always be prepared to question an offer of settlement before you accept it but know that you will have to prove your loss if you want to argue it's wrong.
We know for example that this Christchurch homeowner spent nearly $80,000 to fight their case for seven years. While we can’t confirm that got them the seven-figure settlement they sought, it gives a clue of the potential price of persistence.
As our climate gets harder to predict and harsher at its extremes, it’s never been more important to get your sums right and do all you can to cover yourself before the worst happens.
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