Since the Christchurch earthquakes, the insurance industry has had a major shake-up. Insurers could previously have been accused of being complacent, having routinely underinsured for years – offering full-replacement insurance, but underestimating the actual replacement cost of houses. Their cost per square metre allowances have not matched the actual cost and complexity of houses being built, or the rapidly rising costs of building, and they may have ignored other structures subject to damage, such as retaining walls.
So insurance companies have decided to pass the risk onto us, the homeowner. We now have to nominate a value for replacement, just like we nominate the value of our cars. They will still only pay out on the actual repair or replacement cost at the time of loss, but their pay-out will no longer exceed the nominated sum insured. This means if your nominated sum insured falls short of the actual cost to reinstate your home, you will be left footing the bill for the shortfall.
How do you decide on a sum insured value?
The options are for you to nominate a sum insured amount yourself, or engage a property valuer or quantity surveyor to provide a realistic value. Traditionally, property valuers have provided insurance certificates for the replacement cost of commercial buildings and high-end luxury homes.  Quantity surveyors typically provide costing advice and services within the commercial area of construction.
Residential construction is an interesting area because of the variety of ways it can be costed and carried out. Contracts range from fully developed ‘spec-built’, to design-build, negotiated contract, tender, or labour-only (quoted or charge-up), with or without site management, and subcontractors and materials procured by the owner often with assistance from a project manager or quantity surveyor. So getting up-to-date information on values can be tricky.
Be careful with no-cost options…
There are no-cost options to arriving at a sum insured, such as insurance company default values, online sum insured calculators (often called a Cordell calculator), or you could talk to a friendly builder for a ‘guesstimate’. But it seems to be a human trait to underestimate the cost of construction, just as we underestimate travel times. A Treasury report in 2016 found that up to 85% of Kiwi homes could be underinsured by an average of 28%.
Property Valuer or Quantity Surveyor?
If your home is relatively standard, which covers the majority of our houses, then a property valuer is a good option. If it is on a steep site with high retaining walls, or the house is complex, architecturally designed, or with high standards of finishes and fittings, then a quantity surveyor will be more detailed and accurate, which may be a more reassuring option for non-standard homes.
Property valuers generally produce insurance valuations quickly and efficiently for a reasonable fee, as they have systems and databases to support rapid turnaround of jobs. Generally, quantity surveyors may take longer and attract a higher fee because of the more detailed investigation they carry out and reporting they produce, with a high degree of accuracy required.
Once you’ve made your choice and received your rebuild estimate or valuation, if you still have a nagging doubt, then like most insurance covers – if you err on the high side, the additional cost of cover is not great, but may well be worth the peace of mind to ensure you’re not left out of pocket at claim time.
Find out more about our Valuers’ Insurance Valuations or Quantity Surveyors’ Rebuild Estimate for Insurance services, or for a no-obligation quote for your property, fill in the form below: