Consumer Watch: Insured, but not enough

Dunedin man David Grant lost his house in a fire on the day he renewed his policy. Photo / Sharron Bennett

Changes to home insurance means sums insured may not cover rebuilds

When school principal David Grant's house burned to the ground in July, the last thing he thought was that he was "lucky". Grant's Dunedin home burned down just hours after he renewed his ANZ Asset Protector - Home Buildings insurance policy.

Like more than 80 per cent of Kiwis, he had accepted the estimated sum insured on his renewal notice - only to find when disaster struck that he was under-insured.

Grant had been aware home insurance was changing but, like most people, he didn't really know what to do. "We thought, 'It sounds okay'."

So he paid the premium on the automatically generated sum insured at $2,300per sqm, rather than having his house valued for insurance. "It was one of those things you were going to do," says Grant.

In the fire's immediate aftermath, Grant and his wife were more concerned about clothing the children and finding somewhere to live and didn't pay much attention to discussions on the rebuild.

Once insurance assessors looked over the property it became clear the $368,000 sum insured would have fallen short of rebuilding costs - estimated at $450,000 - had the foundations been damaged or the garage destroyed. Both survived, so the $92,000 garage cover was diverted to rebuild the house.

Keri Collins, head of general insurance, ANZ Wealth, says if the damage had been more extensive, Grant would not have received a pay-out large enough to rebuild. Insurers won't pay more than the sum insured.

Collins wants policyholders to check their sum insured. "Nine out of 10 customers are just accepting the default and assuming the amount is okay," she says.

"Don't assume that the insurers know the specifics of your home. They don't. And ask if the sum insured includes GST on the amount of a claim and if outbuildings are included."

Quantity surveying company Construction Cost Consultants estimates that more than 90 per cent of homeowners could be under-insured. The company says most homeowners will be at least 25 per cent short if they need to fully rebuild.

"Most people have a high proportion of their net worth tied up in their homes and they are doing the right thing by insuring and trusting the number provided," says managing director Gary Caulfield.

Grant says the more he understands about the new sum insured policies and the risk he took by not reviewing his renewals, the more he feels fortunate. "I tell everyone I meet to check their insurance."

Most homeowners' policies switched to the new sum insured policies at renewal time this year and the Insurance & Savings Ombudsman, Karen Stevens, says her organisation has already received complaints from people who found themselves under-insured at claim time.

It's natural not to want to pay more for increased cover. But the costs aren't as expensive as some people fear. The additional premium for increasing Grant's cover to $450,000 would have been $85 a year, or, says Collins, $3.30 a fortnight.