Your home might be your castle – but presumably the owners of real castles didn’t have to work out what it would cost to rebuild them. Homeowners throughout New Zealand are facing this as the insurance industry has moved from replacement cost to sum-insured house insurance policies. With sum-insured policies, you not the insurance company work out the total insurance value of your house if it had to be completely rebuilt or replaced.
That this isn’t straightforward can be seen from the fact that industry groups representing architects and builders have recommended their members shouldn’t provide sum-insured valuations. And while the major insurance companies provide building-cost calculators, they accept no responsibility for the accuracy of their estimates.
Obviously it’s time to call in an expert. But as our mystery shop of companies offering sum-insured valuations shows, finding a reliable expert isn’t easy (see our feature article on page eight). The five companies we chose to do sum-insured valuations on a house in Auckland and another one in Wellington had dismayingly wide variations in the rebuild costs they calculated. One company estimated significantly lower costs than the other four for both houses.
One of the most disturbing aspects of the mystery shop was that the rebuild costs from all five companies were considerably more than the “default” sum-insured value provided by each homeowner’s insurance company – in some cases double. Leaving aside the company whose estimates were the lowest for both houses, all four of the other estimates for the Wellington house were double the insurance company’s sum-insured figure.
Based on this, many homeowners risk being seriously underinsured if they just accept what their insurance company calculates as the sum insured.
This being New Zealand anyone can offer sum-insured valuations whatever their qualifications. We think the government should set some entry criteria and qualifications before people can claim to offer sum-insured valuations. This doesn’t mean a closed shop, but it would provide some guarantee to consumers that the firm has relevant expertise.
And surely insurance companies have an obligation to help their customers get this right – not just provide a calculator that’s a best guess only. People’s homes are just too important an investment for them to be left high and dry like this.
About the author:
David Naulls is Consumer's deputy CEO and the editor of Consumer magazine.
David works closely with the research and testing team to ensure the quality of all articles published by Consumer NZ. He has previously been a research writer and contract books writer at Consumer. Before returning as Content Editor, he was a freelance writer and editor for 25 years. David has post-graduate qualifications in journalism and political philosophy.