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Tony’s Comment – Christchurch Insurance Update

At last some good news on the insurance front in Christchurch, with at least some normality returning to the market. Almost all properties will be able to get some type of insurance, with the exception of the red zone, of course. Further, the recent Seddon earthquakes do not seem to have had an effect. Even TC3 properties which have been damaged, paid out by insurance company, on-sold for effectively land value only and then repaired to a good standard by a new owner can be covered. Admittedly it is an expensive overseas insurance company’s cover, but I have seen premiums reduce to a more normal level after the first year, which is promising. Some banks will accept this cover as long as it is accompanied by the policy document, a registered valuers report and an up to date, comprehensive builders report.

Construction insurance is readily available and many policies carry a guaranteed further 12 months sum insured cover to follow the 9 months build cover – effectively a guaranteed 21 months cover. New houses are insurable but it remains that they are assessed on a case by case basis.

As of May this year, as they fall due for renewal, home insurance policies have been gradually converted from a typical full replacement policy (in most cases) based on sqm of the property, to a sum insured policy. The sum insured is generally specified by the owner of the policy, therefore the onus is on the policy holder to ensure they are not under or over insuring their home. Under insuring would have implications if the property was to be rebuilt and determined that the actual replacement cost was somewhat higher than the noted sum insured value. Over insuring would mean that the policy holder is paying higher premiums than they perhaps need to be paying.

The Cordell calculator, available online, is quite accurate and is commonly used by banks and insurance companies as a guide to the appropriate amount of sum insured cover required. From what I have seen so far, the banks are comfortable with cover being calculated at $2,000 per sqm + GST + demolition and driveways (often around $50,000). Therefore a pretty standard house of 135 sqm would be insured for $360,000. Obviously every case is different but this seems to be acceptable.

This change from full replacement value to sum insured value does not seem to be posing any problems. Most insurance companies, including our city’s largest insurer, IAG, are offering cover in TC1 and TC2 areas (of course on a case by case basis), without too much trouble, even if the owner is not an existing IAG client. It is great that it is now happening again.

Full Replacement cover remains to be offered through Medical Assurance (MAS) and Farmers Mutual (FMG), although this is not accessible to a great deal of people.

As stated earlier, properties which have been paid out by an insurance company in full settlement of claim, then on-sold and repaired (even those in TC3) can be insured by overseas insurers, but as general statement of fact it is still hard to obtain.

Premiums, as you would expect are increasing. This is explained very well at www.need2know.org.nz/whats-happening. For property investors, for now at least, the increases can passed on due to the buoyant local rental market.

I find it interesting that Australian owned insurance companies are having a stellar run on the share market. They would argue it is in line with a general recovery but increasing profits may also be a factor. Still it is reassuring to have the big players in town as it provides the stability we want to see.

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