Most of us have received those rather ominous thick envelopes from our insurer or broker. As we all know, the events in Christchurch have shaken up a rather complacent insurance industry, which have been underinsuring for years. They have been offering full-replacement insurance, but underestimating the actual replacement cost of houses.
Their cost per square metre allowances had not matched the actual cost and complexity of houses being built, 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.
The options are for you to nominate a sum insured amount yourself, or retain the services of a property valuer or a quantity surveyor. 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 in that it is tackled in all manners of fashion; e.g. fully developed ‘spec-built’, design-build, negotiated contract, tender, or labour-only (quoted or charge-up) with or without site management, and subcontractors/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 a bit tricky.
There are no-cost options such as insurance company default values (be careful with these), online calculators, or you could talk to a friendly builder, but beware as it seems to be a human trait to underestimate the cost of construction, just as we underestimate travel times!
A recent Sunday Star Times article has reported banks’ experiences where around 90% of customers appear to be doing nothing and accepting the default amount. This is a worrying as it will likely leave numerous customers under-insured.
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, and/or high standards of finishes and fittings, then a quantity surveyor will be more detailed and may be a more re-assuring option. However both should theoretically arrive at the same sum insured amounts, but will have arrived at these through differing approaches.
Property valuers generally produce insurance valuations quickly and efficiently for a reasonable fee. Generally quantity surveyors can’t match this – why? Property valuers are used to turning around small jobs so have systems and databases to support this. Whereas quantity surveyors tend to work on a project basis where there is more time and a higher degree of definition and accuracy is required.
So once you’ve made your choice and received your 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 and may well be worth the peace of mind.
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