Property insurance rarely adequate – Good Returns

Almost a third (30%) of the surveyed investors and residential property owners are unsure whether their property is adequately insured.

Monday 14 Nov 2022 8:56 am

by Sally Lindsay

A new survey from real estate data and analytics firm CoreLogic provides a detailed look at the country’s established problem of home underinsurance amid high construction cost inflation, rising insurance premiums and broader cost-of-living pressures.
The survey revealed:

  • Almost a third (30%) of respondents are not sure their property has adequate insurance, with 91% believing this is due to a lack of knowledge.
  • A quarter (26%) of respondents with full home renovation insurance are not sure they are fully insured to rebuild their home.
  • More than a third (38%) of those surveyed do not know what their sum insured is on their policy.
  • The average New Zealand homeowner last checked their home insurance coverage almost 2.5 years ago.
  • Although one in ten (8%) respondents choose their current insurance based on a low deductible, only two-thirds (65%) know what their deductible is.

Simone Moors, Country Manager at CoreLogic, says that while a high home insurance rate of 96-98% across the market is a good thing, it may reinforce a false sense of protection.

“People pay for the insurance, but if the sum insured isn’t enough to cover the remodeling cost, they aren’t fully covered and may not find out until the worst possible time.”

According to Moors, even the most risk-averse consumers can quickly become underinsured. “This contributes to the trust issue identified in the survey, with a lack of understanding of remodeling/construction costs (69%) or the cost of a remodeling (64%) being the two most common reasons respondents do not trust their property to be adequately insured is.

She says this is not only a risk for the consumer, but for mortgaged homeowners there is a hidden risk on New Zealand banks’ balance sheets.

CoreLogic’s Cordell Construction Cost Index for the third quarter of this year shows that the indexed cost to build a standard 2,500-square-foot, three-bedroom, two-bathroom, single-story brick home increased 3.4% during the quarter, up annualized Growth to 9.6%, the largest increase since the index began in late 2012.

According to Moors, about three in five (63%) investors and homeowners insure their property based on an “official” or recommended method (a calculator on an insurer’s website, or a remodeling estimate or insurance appraisal from a registered appraiser or appraiser). , 22% used the average property value in the area to decide how much to insure for their property, while 12% based it on a “best estimate”.

“Respondents believe the cost of building a new home has increased by an average of 45% over the past 12 months, with around a third (36%) believing it has increased by more than 50%.”

Although respondents believe property values ​​have increased by 31% and remodeling costs by 41% over the past 12 months, more than half (56%) have not reviewed their home insurance coverage in the last year, putting them at risk of underinsurance , Moors says .

weather effects

Matthew Walker, head of CoreLogic Insurance Solutions, says a major concern is the increasing occurrence and intensity of weather events related to climate change and rising construction costs.

“Coupled with the ongoing risk of earthquakes, the data and findings from the survey show that many policyholders are at high risk, most of them unknowingly – not only of losing their home, but also of serious financial damage, given that their property is for most homeowners risk is the foundation of their wealth.

Rebalance home insurance

A CoreLogic insurance issues white paper examines and quantifies this insurance gap and identifies potential solutions for insurers, their partners and anyone associated with or investing in the residential real estate sector. Walker says the research, insights and solutions can be applied to realign home insurance policies at the consumer level, inform insurer strategies to support policyholders and help close the underinsurance gap.

Other findings from the insurance survey include:

  • Almost half (49%) of New Zealand homeowners who have reviewed their home insurance typically increase their insurance when reviewing their level of coverage, while 40% of respondents leave it unchanged and 2% reduce it.
  • Men are more likely to increase their coverage level when they check it than women (men 53%; women 43%), while baby boomers are the generation most likely to increase their coverage level when they check it (61%; national average) . 49%).
  • More than half (52%) of those surveyed used the information provided by their insurer when concluding the contract to determine the sum insured or replacement cover.
  • Millennials are the most likely to take advice from their insurance provider (57%; Gen Z 47%; Gen X 49%; Baby Boomers 52%).
  • More than half (52%) of respondents considered the current market value of their property when deciding on coverage levels, while 24% considered their current income/budget and 11% considered current environmental factors.
  • One in six (17%) New Zealand homeowners simply renew their insurance coverage automatically.

Key word: insurance

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