Changes to home insurance offered by many insurers will affect many New Zealand homeowners.

Most homeowners are aware of the importance of insuring what is likely to be their biggest asset. Now, with changes to many home insurance policies in New Zealand, the way lots of Kiwis go about insuring their homes is also going to change.

Over the next twelve months, many New Zealand home insurance policies will switch from insuring homes for their actual replacement cost to insuring homes for up to a specified Sum Insured amount. Many new and existing homeowners will be asked to estimate the cost of rebuilding their home as a way to assist them in setting the Sum Insured. While different insurers may use different terms, generally a home's Sum Insured amount will be the maximum amount payable to repair or rebuild a home.

It's important that their home's Sum Insured amount reflects the likely cost to rebuild their home. If homeowners set their Sum Insured too low, it may not be sufficient to meet the cost of a major future claim and the homeowners may have to rebuild or repair their home to a lesser size or quality, or pay for some of the repairs themselves. Conversely, if homeowners set their Sum Insured too high, they may be paying too much premium - and if it costs less than the Sum Insured amount to repair or rebuild their home, then only the actual cost will be payable.

It's all about understanding rebuilding costs

The significance of the changes won't be lost on homeowners. IAG New Zealand Limited ("IAG") - New Zealand's largest general insurer - is recommending its customers decide on their Sum Insured by looking closely at what their homes, including features such as decking, paving, fences and driveways, might cost to rebuild. This should help them set a Sum Insured that better reflects their home than a level of cover based on simpler measures such as floor area multiplied by a square metre building cost.

IAG has produced a series of short videos that will help homeowners identify the many aspects of their home that could have an impact on the cost of rebuilding it.

By estimating the likely cost of rebuilding their home based on an assessment of its features - often things only the homeowner knows - or by sourcing a valuation provided by a building professional, IAG's customers should be better placed to decide on a Sum Insured amount that reflects their particular homes.

This way the many variables which can impact on rebuilding costs - such as how the home is constructed, the slope of the land it's built on, and features such as retaining walls and swimming pools - are taken into account when homeowners set their home's Sum Insured.

Help is at hand for homeowners

Changes like this often mean resources are needed to help people adjust to a new way of thinking. IAG is supporting its customers with a range of tools and information, including the website www.need2know.org.nz which explains the changes and features a user-friendly online calculator that can help estimate the likely cost of rebuilding most New Zealand homes.

Why the changes are happening

The switch to home insurance being based on a Sum Insured is IAG's response to meeting the new requirements of its global reinsurers, who have advised that they need to know the maximum amount IAG would have to pay out in claims for the homes it covers. Reinsurers are the companies that insurers like IAG obtain their disaster cover from, and the reinsurance they provide helps insurers meet the costs of claims after catastrophic events like the Canterbury earthquakes.

IAG provides home insurance directly through the State and Lantern brands, and offers NZI policies through AON, Crombie Lockwood, BrokerWeb Group and other brokers. It also underwrites most of the home insurance offered by ASB, BNZ and The Co-Operative Bank. AMI Insurance Ltd ('AMI') is a related company of IAG New Zealand Ltd so, for convenience, all references to 'IAG' in this article mean IAG New Zealand Ltd, State, NZI, Lantern and AMI, as applicable. Homeowners with a replacement home insurance policy from one of these insurance providers will find the need2know.org.nz website relevant to their home policy. If your home isn't insured with IAG, this information, and the need2know.org.nz calculator may still help you understand changes to home insurance.