75% of homeowners could be underinsured
75% of homeowners could be underinsured – according to AA Insurance
Ignoring your home’s sum insured figure could prove short-sighted
Auckland, 31 March 2014 – An alarming 75% of homeowners risk being underinsured and unable to rebuild their home because they haven’t responded to the change to ‘sum insured’, says AA Insurance.
Introduced last year, sum insured is the maximum amount an insurer will pay to repair or replace a home in the event of a claim. Homeowners are asked to provide their insurer with the estimated cost to rebuild their home, determining its adequacy and keeping it up-to-date.
“It’s extremely important for homeowners to check whether the default rebuild value, provided on their renewal policy, is going to be enough for them to rebuild their home,” says Suzanne Wolton, Head of Customer Relations, AA Insurance.
“The default figure is based on fairly limited information, such as age and size. However it doesn’t take into account all the other features that add value to your home, such as building materials or the quality of its fixtures.”
“This means the default figure may not be enough to rebuild or repair your home to the same standard it is now. If it’s not, then you need to contact your insurer to change it so your home is sufficiently covered.”
Many customers have adapted well to the new responsibility of providing the sum insured figure for their home, says Suzanne, with one quarter of customers having made changes to the default figure on their policy renewal. Of those who made changes, 88% of these customers increased the default figure by an average of $120,000 per home, while 12% decreased the default figure by an average of $100,000. For every $100,000 this meant, on average, a difference in their premium of around $40.
“Despite extensive communications with customers, almost a year down the track, we are worried that 75% of customers have taken no action whatsoever after receiving their renewal notice,” continued Suzanne. “This means they could end up underinsured, and either burdened with making up the shortfall to rebuild their home, unable to have their home reinstated to its current status, or worse, unable to rebuild at all.”
“It may be
that these customers have calculated that the default figure
provided on their renewal notice is right for their home, so
they haven’t needed to get in touch with us. However,
that the vast majority haven’t calculated a figure, or contracted a building expert to calculate a figure, but have simply put it into the too-hard-basket and consider the default figure to be ‘good enough’.
“We are strongly encouraging homeowners to take action to respond to the biggest change to home insurance in the past 20 years. If they don’t contact us with their own sum insured figure, they may be financially exposed should they need to make claim.”
She says insurers are often asked why they can’t just calculate the figure for a customer, but it’s impossible to know all the details of a customer’s home that needs to be taken into account, such as the roofing materials, the slope of the land, or what your flooring is made of. That’s why as the homeowner you are in the best position to calculate the sum insured figure, or contract a building expert instead.
“If money is the issue, then you
should know that the majority of existing customers
shouldn’t notice any significant difference in premium
costs,” she says. “In some cases the premium may change,
but only because it will now more accurately reflect the
maximum amount the insurer could have to spend in the event
of a claim.
“We cannot stress enough how important this decision is, for what is generally most New Zealanders’ biggest asset. So, don’t ignore your renewal notice, or place in the too-hard-basket. Work out your sum insured now, and let your insurer know of any changes. If you don’t, you could be short changing yourself come claim time.”
AA Insurance tips for determining your sum insured
Before you start calculating, check out the specifics of your home first, such as the size, construction materials, what the roof is made of, the length of your driveway, the size of the decking etc. If in doubt, get your tape-measure out!
If you have a fairly standard home, there’s a link to the Cordell Online Calculator on the AA Insurance website, aainsurance.co.nz. Cordell provides estimated typical building replacement costs. The Cordell Online Calculator does not take into account every possible feature of a home - it only takes into account the features and information that it asks you, the customer, to input.
If your home is unusual, or you haven’t been asked about its significant features by the online calculator, or you want advice on the cost of replacing your home, you should contract a building expert such as an architect, builder, valuer or quantity surveyor.
If you have any questions there are plenty of Frequently Asked Questions on the website too. If you still have no luck finding the answer, then give us a call on 0800 500 231.
Once you have your sum insured figure, you can then get a quote for your home insurance.