Until recently, most house insurance policies provided ‘full replacement’ cover. When you arranged this sort of policy, you would have specified the size of building to be insured. If your house were totally destroyed, the insurance company would pay to clean the site and build a new house to the same size and specifications, no matter what the cost. This is changing.

How is this changing?
Now, as insurance policies roll-over, insurance companies will only provide cover up to a specified value. That value would include all the associated costs of re-building (for example, costs of demolishing the damaged building, removing the debris and professional and consent fees associated with re-building). It will probably also include the costs of re-instating things like fences and swimming pools. These policies are called ‘sum-insured’. Premium costs are likely to increase.

Why is it changing?
Recent global disasters, including the Canterbury earthquake, have cost global reinsurers (the companies that insure the insurance companies) a lot of money. Those companies will now only insure NZ companies if they know the costs they will face should disaster strike. Sum-insured policies allow them to do this, whereas full-replacement policies do not.

How will these changes affect me?
Previously, with a full-replacement policy, home-owners could basically just insure their house and forget about things until and unless it was necessary to make a claim. The move to sum-insured policies means that it will now be the home-owner’s responsibility to make sure the sum insured is enough to rebuild their home. You’re gong to have to become a lot more involved in the insurance process, not just when you set your insurance up, but throughout the life of the insurance policy.

What should I do now?
As your current house insurance policy rolls-over, your insurance company will set a ‘sum-insured’ value. Don’t just take their word for it – calculate the sum-insured yourself.

Do this by;
1. Using one of the online calculators. You can start this process by going to need2know.org.nz better still…
2. Obtaining a valuation from a specialist (a Registered Valuer or Quantity Surveyor).
– Step 2 is especially recommended if your house is architecturally designed or has any unique features
– We would advise clients to do step 1 or 2 at least every five years, or after any major renovation. in the interim years, you should at least make sure the sum insured increases by the amount of inflation.