Graham Matthews says recent and significant changes in house insurance will have a big impact on homeowners

There's been a lot mentioned about this change. But perhaps the biggest help would be to have the names of the insurers who are still offer replacement insurance. FMG do for a start.

There is also the issue of demand inflation. A quantity surveyor can tell you how much it will cost to rebuild your house today. The question though is how much to rebuild your house if 10,000 houses are destroyed and 100,000 are damaged in an earthquake? The insurance industry wants to transfer this risk to the customer. But what good is insurance if you are not fully covered if disaster strikes?

Compulsory insurance coming our way? 

If the risk of insurance is passed onto the homeowner, why have insurance in the first place? Unless one has a mortgage insurance is not compulsory, but the question is: How long before it is made compulsory? 

HGW

I now pay approx $1000 for unlimited cover on my house. Unlimited is clearly a very large number, and I haven't got time to type it in, so lets subsitute the approx GDP of the world's ecomomy, which is very much less than unlimited (70 Trillion). This equates to an insurance cover of $1 of premium = $70 B of cover.

Now that my cover is restricted to approx $500,000, surely my premium must reduce to a fraction of a cent?

Wonder how much leaky home syndrome on my 3 bedroom house I'd need to claim 70T? (oh that's right - not covered)

Let me get this straight - insurance companies appraoch us and say "that our stuff faces risk of loss or damage from various causes. For a fee, we will take on that risk for you." Then to cover their own risk they take re-insurance cover just in case their own risk assessment was in error. Over the years they have manage to fleece society in general of billions if not trillions in premiums, revelling in huge profits. Now when they have a couple of bad years they are trying to make us pay for their loss of profits for this period. Am I the only one who sees the disconnect here?

StuartM - the major players were all hit hard. Most would have followed AMI had they not been able to quietly shuffle funds over from parent companies in Australia. Due to misunderstandings of the way EQC works the reinsurers were hit harder than they expected as some were under the impression that all claims carried a $100,000 payment from EQC, not just dwellings. On top of that from a reinsurance perspective we are lumped in with Japan  and Australia so we would have felt a big hit even without the Christcurch earthquakes.  Your main point still probably holds true though, that the previous years of profits count for nothing and the reinsurers will take their pound of flesh to cover the risk as they see it now. Maybe the rates will settle if we have a quiet couple of years but don't hold your breath... 

If we want replacement insurance where the Insurance companies and underwriters does not know its potentoa liability then be prepared to pay large increase in premiums.

Its pretty simple. The Insurers need  know their maximum liability then they can cover and price for it.

PS I am not un-informed and if you knoiw so much about it tell me where else in the world we can get Full Repalcement Cover.

Also Full Replacement Cover if fairly new in New Zealand, being avialable for less them 30 years when Sum Insured (or Indemnity) was the only insurance avaiable.

Sum Insured requires the insured to have the right cover from day one and no doubt insurance companies will have inlflation adjustted options as well.

PS The retaining wall example is on the extreme but the principal is the same (and there are multiple examples of this like $50,000 swimming pools so all this adds up to the final bill) . The insurers did not excacly what was being covered and no doubt didn't price for it.

By not pricing for it meant they didn't have reinsuance in place nor the reverse.

The other ket issue to consider is that Market Value of your House is not the replacement value to cover it as well.

So when considering Sum Insured amount is not what my house is worth but what will it cost to rebuilt it. Its cost may be more or less than its market value (excluding land).

Unless one is prepared to pay ongoing surveyor fees, every 2 years there is no way to establish the likely rebuild costs. The programme fair Go illustrated this perfectly.

Now if one is under insured the insurance companies cap their potential payout, so what happens if one over insures? Do they say they will only pay to rebuild what was there in the first place. But surely the new system is insuring a specific monetary payout amount and is not a contract to physically rebuild, it is simply a contract that should pay out this specific amount in the event of a particular insured event taking . I cannot see what the actual rebuild cost would have to do with it

If I insure for $ 100 I pay the premium based on that amount of cover, the insurance company is liable only for $ 100. Similarly if I insure for $ 2 million and pay the premium that is what the insurer should have to pay out. From a fee income point of view over insuring is an insurers dream until of course there is a claim, but then again potential finacial risk v financial return is what insurance is all about is it not?

Of course insurers seem to include "sweeteners" to encourage an actual rebuild such as council costs and debris clearance charges (does anybody seriously think these are not factored in the premium equation?). Insurers want people to rebuild especially if the insurers handle the process (economies of scale and the muscle they have with building firms etc)  as this enables them to reduce their maximum exposure.

Insurance..oh yes...that's where wgtn and marl residents pay a premium but are up for 5% of the repair costs when  quake damage happens...since $400K is probably an average cover...that'll be the first $20,000 you pay and guess what...the insurance company determines the repair cost!..,.haha