The online rebuild cost calculators that many insurance companies use often draw upon outdated council information and can underestimate by “at least 20%,” according to Fraser Walker, risk and insurance lead for quantity surveyor Construction Costs Consultants.
Walker’s statements come following the recent extreme weather events in Aotearoa.
A 2016 Treasury report found that 85% of homes across New Zealand were under-insured by an average of 30%, with estimates running as high as $184 billion annually and considering the recent inflation and cost surges caused by COVID-19.
In a statement, Walker said that many homeowners who have relied on online calculators to estimate the insurance value of their homes are realizing that most NZ properties are not adequately insured. He said that a major shift in insurance requirements occurred in the wake of the Christchurch earthquakes, which decimated not only the city but also the insurance market. Following this catastrophic event, homes began to be insured by cost per square metre, placing the onus on homeowners to nominate their own “sum insured” value rather than the entire property being insured for “replacement.”
“The Christchurch earthquakes, in particular, exposed how inaccurate that square-metre rate system was, and insurance companies had really underestimated their exposure,” Walker said. “Most decided to shift the burden to the customer to nominate a sum insured. Suddenly homeowners were being asked what they thought their home was worth to replace, when they’re not in the construction industry — and they’re not builders.”
The result is, as expected, severely underestimated insurance figures. While many insurance companies and brokers recommend clients use an online rebuild cost calculator, oftentimes this uses outdated information that can’t keep up with material price increases, Walker said.
To get a more accurate estimate, Walker suggests quantity surveyors over traditional registered valuers, saying that quantity surveyors can give homeowners a more accurate picture of a home’s worth.
“A regular valuer is looking at market valuation – but that bears no resemblance to rebuild cost. They’re looking at where it is, does it have a view and so on, whereas a rebuild valuation is looking at the actual bricks-and-mortar cost,” he said.
Walker said that the data quantity surveyors use is always being revised to provide accurate pricing for materials, labour, and construction inflation. Given that companies like his are working in that space to the tune of several billion dollars at any one time, it makes the sector extremely useful in the case of home rebuild valuation reports. He also recommended reviewing the valuation report every couple of years to account for building cost increases.
“At the end of the day, it will give you peace of mind, should there be a fire or some natural catastrophic event, when you will need to be insured for the correct value. If there’s another event like Christchurch, insurance companies are only going to pay out the agreed sum insured,” he said.
The recent extreme weather events that devastated New Zealand are also expected to cut into the profits of the property insurance market due to the massive payouts expected, with the figure estimated to be in the $1 billion range.
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