Will clifftop properties still be insurable?

Clifftop property owners should expect more questions from their insurer in the wake of the Auckland floods, an insurance broker says.

But Sam Kerr, a financial adviser specialising in general insurance with Share who also sits on the board of IBANZ, said he doubted there would be any wholesale exclusion of those types of properties by insurers.

The Auckland floods have seen a number of clifftop properties suffer damage including a $10 million cliff-top mansion in Remuera which has been red-stickered.

“There is not a hard line to say that all insurers will exit the market for clifftop properties. I think what you will find and what we have already started to see is more questions. Not intrusive questions. But fair questions.

“You are asking an insurer to take on a risk for a $3m clifftop property in Milford. If there are signs of coastal erosion - how fast is that, what are you seeing? How many slips has it had, what is being done to mitigate it - are all factors that play into will an underwriter actually take on that risk?”

Kerr said homeowners were often used to having access to comprehensive cover but he said if property damage was likely to be inevitable it would be tougher to get cover and there may be exclusions, a higher excess and/or premiums.

“At the end of the day insurance is there for unexpected losses. If something is likely to happen the individual insurer would be weighing that up.

“I don’t think collectively you are going to see a wholesale exit with everyone pulling out of the market. But I think you will certainly see it tighten up.”

Current claims

Kerr said exactly who owns the land right on the edge of a property can vary.

In some areas where there were public walkways below the clifftop, a portion would be owned by the council.

“In a lot of clifftop areas where there is not a seawalk area down below then that cliff area is owned by the property owner. It really comes down to the way that each individual property is titled and surveyed.

“There is no general rule of thumb.”

Kerr said some of the losses of land in the Auckland floods involved several metres of cliff face being wiped away and some quite wide slips as well.

There are two parts to EQC where property owners with private insurance can get compensation.

The first is EQC building cover where the first $300,000 of a claim can be covered, with anything above that topped up by the private insurer.

There is also EQC land cover. “Your normal home insurance doesn’t insure the land, EQC does.”

Kerr said EQC land cover was designed to cover areas of land which supported the home - under the home and outbuildings like sheds and garages and land that was up to 8m from the buildings, plus the main accessways like driveways up to 60m and the land which supported the driveway.

It also extended to bridges and culverts as part of driveways.

The land claim was paid out based on either the cost to repair or reinstate it or, if that was not possible, compensation for the loss of the land. That was based on a valuation carried out by a professional valuer using recent sales data to work out the square metre value of the land lost.

Kerr said it was typically a fairly quick process to put a red or yellow sticker on a building as a first response to assess the safety of a property.

“But then you have to go through a whole engineering phase.”

A landslip that was 10m wide at the top had an insurance aspect but would also require a geotechnical and/or structural assessment to look at whether the site had been compromised, the risk of a further slip and how likely the face of the slope was to continue to erode.

“That’s the part that takes quite a long time.”

Kerr said lessons had been learned from prior events and having the system centralised through private insurers meant it was easier - prior to the 2016 Kaikoura quakes people had to put in separate claims to EQC and their insurer. “It’s a lot more streamlined now.”