Problem of Widespread Home Underinsurance
More data about an incipient crisis in the national housing market is emerging, with a survey of 459 older New Zealand homeowners showing that two-thirds mistakenly believe they are insured for the true cost of rebuild. In fact, a group of quantity surveyors says, its own assessment of more than 25,000 residential properties has found that nearly all homeowners are underinsured, most by around 25% of rebuild cost and some by up to 50%.
The responses to a range of questions show that homeowners are largely uncertain about the effects of – and risks posed by – recent changes to insurance guidelines.
The survey was conducted in December 2013 by the lifestyle website for 50-plus New Zealanders, GrownUps.co.nz. Ninety-six percent of respondents reported having home insurance, and 82% own their home freehold. Most – 62% – indicated that they are confident they are insured for the true cost and value of rebuild, while 9% believe they are overinsured and 29% underinsured.
The findings follow the recent warning by Construction Cost Consultants about the extent of home underinsurance following the issuance in July 2013 of new guidelines requiring a ‘sum insured’ to be nominated by homeowners.
The company noted that the majority of homeowners who have cover are at least 25% short of the rebuild cost, having accepted the default sum provided by banks and insurers. It further estimated that at least $167 billion worth of residential property is currently not insured for rebuild.
Based on data it has received from its partners in the financial services sector, including many major banks and insurers, Construction Cost Consultants says 93% of homeowners who have renewed their policies since July 2013 have accepted the default sum provided by their insurer. Of the remaining 7%, most are using an online calculator to nominate their own sum, and a small minority are seeking assessments from property valuers or quantity surveyors.
Gary Caulfield, managing director of Construction Cost Consultants Residential, says the survey results show the gap in understanding that is putting Kiwi homeowners at risk.
“The new guidelines have only been in place for six months, and in our view there has not been a sufficient degree of education to ensure homeowners are covered for the full cost of rebuild. Insurers and banks are doing their best in response to new demands from reinsurers, but to put the onus back on homeowners, few of whom have the necessary expertise to assess their own number correctly, leaves an enormous amount of personal wealth unprotected.”
The survey responses also indicated that there is no first port of call for advice on the new requirements. When asked who they would talk to in order to understand the new home insurance guidelines, answers ranged from valuation companies and insurers to friends and family members, builders and architects, real estate agents, financial advisers and online calculators. And while 83% said they know what a quantity surveyor is and does, only 57% reported knowing the difference between a QS report and a bank valuer report for their home.
Further findings from the GrownUps.co.nz survey:
- When asked whether they had accepted the default sum option in their last insurance policy renewal package, 11% of survey respondents said yes and 44% no, and another 44% weren’t sure;
- When asked whether they would accept a ‘default sum’ if it were provided, 9% said yes, 40% said no, and 52% said they weren’t sure;
- Fifty-one percent of survey respondents said knew how to measure their home for a valuation with a tape measure and calculator, and 49% did not. Overall, they were averse to the online calculators available, with 65% believing calculators do not provide an accurate cost of rebuild.
Before engaging a quantity surveyor, a homeowner should request evidence of:
- Professional qualifications – NZIQS (New Zealand Institute of Quantity Surveyors) membership, QSI (Quantity Surveyors Institute), RICS
- Professional indemnity insurance;
- Track record / experience in the field;
- Format of insurance report (ie is it approved by ICNZ);
- Warranty and guarantee of insurance report for a fixed term (Construction Cost Consultants guarantees reports for two years from date of issue);
- Content of insurance report and what it will provide, ie detail breakdown of costs.
Construction Cost Consultants’ most frequently asked questions:
- Will my insurance premium go up? This depends on whether the insurance report finds that the current level of cover needs to increase to reflect the cost of rebuild. On average, every additional $50,000 worth of cover costs approximately $75.
- How often am I required to seek an assessment for insurance? Insurance policies must be renewed annually. However, insurance reports by Construction Cost Consultants cover a two-year period.
- How long does it take to get a report? The time from request for survey to issue of report is approximately 10 days.
- Will my insurance report / increased insurance premium affect my rates? No. The information is solely for the person who orders the report, and is not provided to any third party by Construction Cost Consultants.
- Does the survey include decks, outbuildings, swimming pools and so on? Yes. Everything except land is assessed for construction cost and included in the report.
For more information:
+64 (0)21 324 463
About Construction Cost Consultants
Construction Cost Consultants is a privately-owned firm of professional quantity surveyors and NZIQS members working in the residential and commercial arenas. Its range of high-quality construction management services to the national property market includes:
- Quantity surveying and construction cost consultancy
- Accurate and guaranteed insurance rebuild valuation reporting to residential and commercial property owners nationwide
- Partnering and procurement
- Construction, commercial and programme management and project monitoring
- Contract administration and claims/contract assistance
- Strategy and advice
- Project management training and seminars
- Client representation
- Dispute resolution and litigation support services
- Disaster recovery
Employing the best consultants from New Zealand, the United Kingdom and beyond, we apply extensive commercial acumen based on a history of delivering programmes on schedule and within budget. Construction Cost Consultants meets client needs from conceptual design stage through to project delivery, and offers a full spectrum of services to building owners, construction companies, subcontractors and suppliers, funding bodies and insurance companies.
Our consultants are currently engaged by a PMO in Christchurch, and are providing commercial management, quantity surveying and contract and procurement service to that organization, and associated advice to insurers as the rebuild progresses. To date, Construction Cost Consultants has completed more than 20,000 rebuild valuations in Christchurch. The value of works to be carried out with the involvement of our consultants is currently $4.5 billion.
In association with our Christchurch work, we have established a process with proven and measurable results that is applicable to any disaster recovery programme globally.
In the national residential market, we have undertaken more than 25,000 quantity surveys for rebuild valuations on private homes around the country. All insurance rebuild valuation reports for residential and commercial are attached to warranty and are guaranteed by Construction Cost Consultants for two years from the date of issue.
Our services are available throughout New Zealand and in Australia, the United States, Europe and Japan. We can also work on other international assignments as required, on a short- or long-term basis.