Apartment owners struggle with skyrocketing insurance premiums, Treasury admits ‘knowledge gap’

Treasury has admitted its understanding of how the insurance market operates for apartment owners is limited to anecdotal evidence and is undertaking a nationwide survey to “fill that gap”.

It comes as some apartment owners struggle to pay for insurance premiums that have skyrocketed in the past decade.

Treasury economic system director Tim Hampton said the survey has been sent out via the Body Corporate Chairs Group and Inner City Wellington residents’ association.

“Our current method of monitoring residential insurance price and availability uses online quotes to source premium information,” Hampton said.

“Online quotes are not offered for apartment buildings. We hope this gap in our knowledge will be filled by the new survey we have just sent out to body corporate chairs.”

Treasury is interested in issues including price changes over time and the availability of insurance, Hampton said.

The survey is a routine part of Treasury’s Cabinet-mandated responsibility for advice on the functioning of insurance markets, he said.

Any concerns that arise from the survey will be raised with ministers.

Finance Minister Nicola Willis said she expected to be briefed in early March about the survey results.

“The Treasury has been carrying out price and availability monitoring of residential insurance prices since the EQC cap was increased in October 2022 and this has recently expanded to include apartment buildings,” Willis said.

Treasury is interested in issues for apartment owners, including price changes over time and the availability of insurance. Photo / Mark Mitchell

The cost of insuring apartments in Wellington has been steadily increasing for several years now for both owners of earthquake-prone buildings - some facing 30 per cent year-on-year increases to premiums - and those with higher New Building Standard ratings.

Inner City Wellington residents’ association spokeswoman Geraldine Murphy said the cost of insurance premiums was becoming unaffordable for some people.

“Especially people on fixed incomes or people who have just bought in with large mortgages,” she said.

Murphy lives in a Wellington apartment that is about 130 square metres, including a storage unit and a car park. It’s valued at $860,000 and has been strengthened to 70 per cent of the New Building Standard.

Her share of the yearly insurance premium for the building is $8796, equating to 56 per cent of her body corporate fees.

This compares with an owner of a standalone house in Brooklyn she has spoken to. Their home is 164sq m and valued at $1.5 million but the insurance premium last year was only $3,310.

Insurance Council chief executive Tim Grafton said apartment insurance costs were inevitably higher as they were larger, more complex, have multiple owners and as a result, the risk was higher.

“Insurance premiums have increased due to the 2016 Kaikoūra earthquake, construction inflation, increased costs of re-insurance and the increased costs of claims from recent events,” Grafton added.

Inner City Wellington spokeswoman Geraldine Murphy wants the Government to take a look at the expectations of apartment owners and what’s feasible. Photo / Mark Mitchell

Murphy said there needed to be more insurance options for apartment owners to make it more affordable, starting with greater clarity in the Unit Titles Act.

The act says a body corporate must insure a building to its full insurable value but it also says indemnity cover is allowed if full replacement cover is not available in the market.

Murphy said the wording was unclear and affordability should be taken into account when deciding whether full replacement cover is considered to be available in the market.

Owners in Murphy’s building have gone ahead with indemnity insurance anyway. It means she is paying $8796 annually, compared with $13,175 for full replacement cover.

Murphy understood owners would not necessarily get full replacement cover anyway after negotiations with insurers were through.

She said many apartment owners would not necessarily want to rebuild in the event their building collapsed in a major earthquake.

“It just isn’t viable for these groups of owners to suddenly become developers and hang around for five years, or however long it takes, and that’s assuming you get that agreement of 20 or 30 owners on how it’s going to work.”

Murphy wanted the Government to take a look at the expectations of apartment owners and what was feasible.

The cost of insuring apartments has been steadily increasing for several years now for both owners of earthquake-prone apartment buildings and those with higher New Building Standard ratings. Photo / Mark Mitchell

Te Tūāpapa Kura Kāinga - Ministry of Housing and Urban Development confirmed it was aware of these concerns but was not currently looking into the issue.

“Insurance cover for multi-unit dwellings is a complex issue. Any changes to this area of the law would require public engagement,” it said in a statement.

Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.