CHANGES TO HOME INSURANCE

Transcription

1 CHANGES TO HOME INSURANCE ESTIMATING REBUILDING COSTS FOR SUM INSURED POLICIES 25 JULY PROPERTY INSTITUTE OF NEW ZEALAND

2 WHAT S CHANGING? Home insurance in New Zealand is moving back from unlimited cover on residential dwellings to a specified sum insured. This aligns with the rest of the world, as well as all other insurance classes in New Zealand, such as Contents Insurance. It s not an agreed value ; The sum insured is the insurer s maximum amount payable. PAGE 2

3 WHY IS IT CHANGING? For the last 25 years, insurers have carried a lot more risk than homeowners by providing unlimited replacement cover on a new-forold basis for the majority of New Zealand homes. Following the Christchurch earthquakes, reinsurers have asked insurers to provide more certainty around total exposures to better model potential catastrophes. The Prudential Supervision Act 2010 gives the Reserve Bank power to require all insurers to hold capital (including reinsurance cover) to recover from a 1-in-1000-year catastrophic event. Insurers need to better quantify exactly what our exposure is for such an event. PAGE 3

4 WHAT DOES THAT MEAN FOR VALUERS? As customers policies renew from May 2013 onwards (and as people take out new insurance policies for newly purchased homes), insurers will ask customers to specify the dollar amount of cover required. Most insurers will provide online tools to support customers to quantify the likely cost to rebuild their home, however these are based on assumptions and averages (anticipated variance +/-15%) and are only expected to be suitable for 80% of homes. We expect a high increase in the number of homeowners requesting valuations over the next months to assist in estimating their home s rebuilding cost to determine the sum insured. PAGE 4

5 WHAT S COVERED BY A HOME INSURANCE POLICY? THE HOME AS DEFINED BY IAG (a) Automatically covered = things which most homes have: Residential dwelling, including decking plus any residential outbuildings (garage, garden sheds, glasshouse, etc.), Permanently attached fixtures and fittings inside the home or attached to the home Any permanent artificial surfaces on the land surrounding the home (e.g. fences, paths, driveways, gates, paving, etc.) Underground and overhead services The legal boundary of the property is our limit, not the EQC s 8m rule (b) Covered but with a limit (not all homes expected to have): Retaining walls Recreational Features: swimming pool, spa pool, tennis court These limits varies from one policy to another PAGE 5

6 WHAT S COVERED BY A HOME INSURANCE POLICY? (c) Special features which only a few homes have IAG s policies exclude the following structures unless specified: 1. Cable cars, 2. Jetties/wharves, 3. Bridges, 4. Alternative energy sources (e.g. wind turbine) What about carpet? Different insurers have different approaches to tacked carpet. IAG includes. What about shared access, right-of-way easements, structures with shared ownership, cross leases? We need to know if they exist, and understand our client s share. PAGE 6

7 WHAT S COVERED BY A HOME INSURANCE POLICY? COSTS COVERED Cost to repair or rebuild the home to an as new condition, using current building materials and methods Reinstate the home on a like-for-like basis (i.e. Native timber replaced with native timber) to the extent it s possible Costs of building consents, professional fees, architects, etc. Needs to account for cost of installation (e.g. Installing a lift, not just the cost of the lift itself) Costs to comply with current legislative requirements (e.g. Upgrade single glazing to double glazing). Note these as upgrade requirements. Note: Earthquake-prone buildings policy currently only applies to residential buildings comprising more than 2 dwellings and multiple storeys, but this may be a future consideration Cost of demolition and removal of debris PAGE 7

8 WHAT DOES IAG NEED FROM VALUERS? 1. Reinstatement Estimate - Include cost to replace all buildings and structures within the boundary assuming everything is totally destroyed - Separate values provided for o Retaining walls o Recreational features o Special features 2. Inflationary Provision - Provision for inflation during period of cover (assume 12 months from date of valuation, otherwise specify) - Provision for inflation during estimated time to plan & rebuild 3. Demolition Estimate - Cost to demolish remaining damaged structure, clear site to commence rebuilding and disposal of damaged structure - Cost to remove and dispose of hazardous materials if identified PAGE 8

9 WHAT DOES IAG NEED FROM VALUERS? Indemnity value - What does it mean for residential property? - Depreciated Replacement cost? Homeowners don t understand it - Relevance of market value? completely different valuation methodology - No significance Fire Service levy for residential property at present Functional Replacement Heritage status significant impact on building costs for repairs GST statement as to treatment (included or excluded?) Multiple dwellings (block of flats, detached granny flat) - Is it a unit in a block/row? Is it a whole block? Body Corporate? - Number of self-contained dwellings for EQCover PAGE 9

10 WHAT DO WE NOT EXPECT FROM VALUERS? Post-event inflation provision We do not expect valuers to anticipate likely increase in building costs following major events. We want to understand the cost to reinstate in today s market with reasonable assumptions around inflation under normal circumstances Underwriting factors we would expect the client to disclose If the valuer identifies these, it is nice to know but not expected, however the cost to reinstate should be taken into account Occupation (any business use of the property rather than sole residential occupancy) Security Fire protection measures Artworks, furniture, plant & equipment, landlord s contents Land stability (as opposed to obvious slope of land) PAGE 10