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Thursday, July 25, 2013

Sum insured - what amount should you insure your house for? What could go wrong?

As mentioned in previous posts, future house insurance policies will be based upon what YOU have assessed as being the cost of rebuilding. This isn’t just the cost of time and materials, it also includes costs relating to demolition and disposal of the rubble, surveys, local and regional council consents, legal fees, plus others that are complex (e.g. disposing of asbestos) or don’t come to  mind at the moment. You also need to know what limitations or conditions insurers put on certain aspects of your property (e.g. the technical category of your foundations, retaining walls, hazardous materials). It is not going to be easy to get this right. Get it wrong and you loose in a devastating way.

Not only is it going to be a difficult exercise there is also, as highlighted in a recent item on the Australian insurancenews.com website (here), the issue of avoiding unqualified valuers.  In that item NZ Property Institute CEO David Clark is quoted as saying:

“We are concerned that these so-called professionals have no training or qualifications in valuation or quantity surveying,” Property Institute CEO David Clark said.

“Worse, they may not carry professional indemnity insurance, giving you virtually no recourse in the event they let you down.”

Many thousands have experienced the incompetence of EQC’s assessors, so the warning is timely.

Adding more smoke than light to the situation, the Insurance Council of New Zealand (ICNZ) Insurance Manager John Lucas is reported as saying insurers offer online valuation calculators tailored to their policies.

“The council believes they should be fairly accurate, but often people want second opinions and we would be very concerned if homeowners were being duped by people who were not qualified,” he told insuranceNEWS.com.au.

“It can have devastating consequences if you are underinsured, and if you are overinsured you are throwing money away.”

This seems a reasonable enough comment to make, until you read the disclaimer that is associated with such on-line calculations (e.g. here):

The Cordell Online Calculator does not necessarily take into account every feature of your home, nor does it provide advice. So, if you haven’t been asked about a certain feature of your home by the calculator or you want advice, you should contact a builder, architect, valuer, quantity surveyor or other building expert to help estimate your Sum Insured.

How exactly do you reconcile “fairly accurate” with “does not necessarily take into account every feature…”? As an aside, are builders and architects the most suitable people for the job?

As far as I can tell on-line calculators don’t cater for TC foundation categories so, if this is correct, they are a waste of time for everyone in Canterbury. More importantly, if this is the case, why did ICNZ’s John Lucas say: “The council believes they (calculators) should be fairly accurate …”  Surely that is confusing at best and, more probably, quite misleading. 

It should be incumbent upon the ICNZ to prepare a list of what qualifications or accreditations will be accepted by its members as suitable for the purposes of their insurance policies. Failing that, each insurance company should produce a list of the categories of trades and professions they consider acceptable for the purpose of creating a sum insured figure.

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