Prendos recently appeared on One News and in Consumer Magazine in regards to a mystery shopper comparison between house insurance valuations, which produced ‘shocking’ results. Prendos Director and Registered Valuer Gordon Edginton gives further insight into homeowners responsibilities regarding their insurance policies.
We agree with the sentiments of the Consumer Article “Betting the House”. Consumer have stated “your biggest asset – your home – should not be allowed to become your biggest risk”.
In Prendos’s view the most important issue for any home owner is to ensure they have adequate cover in place to reinstate the asset. Prendos does not want any home owner to be under insured and in the unlikely event of total reinstatement being necessary, it is imperative there are sufficient funds in place to replace all aspects of the property.
Relying on the default figure provided by the insurance company is risky for any property, but particularly for larger homes, high quality dwellings, those on difficult sites or property with extra site works and features. Other factors such as access for large and heavy vehicles, removal and disposal of rubble, topography etc. all need to be taken into consideration.
Using the on-line calculators to assess the reinstatement estimate can work, but again is risky. It requires a home owner to have good knowledge of the inputs necessary to compile the figure with a range of data needed. Without accurate data, the reinstatement estimate produced on line could be very misleading and potentially result in under insurance.
The responsibility lies with the home owner to select their final “sum insured” amount. In our view, it is important they seek professional advice from a Valuer, Quantity Surveyor, Engineer or similar to give a robust and accurate reinstatement estimate.
Our re-build estimates use data compiled from an extensive database of construction costs and projects. These are regularly monitored and updated for price movement.
Prendos has an invaluable resource base to call upon when undertaking these assessments. This includes a large team of Quantity Surveyors, Engineers, Architects, Draughtsmen, Project Managers, Valuers and Building Consultants. All lead consultants within these teams have had input into the cost estimates we use to ensure they are accurate and complete. Our Valuers have had extensive training in insurance reinstatement work and have up to date market knowledge of re-build costs.
The insurance estimates we provide include an allowance for demolition costs to clear the site of all debris to enable re-building. They also have an inflationary provision which for most homes amounts to the equivalent of approximately two years inflation. This assumes an event may happen on the last day of an insurance calendar year and then typically allows one further year to re-build the asset and obtain all necessary consents.
Character or period homes from the early 1900’s (i.e. villas, Californian bungalows etc.) are very difficult to price as they have extra features and characteristics that are costly to replace. Furthermore, obtaining consent for homes in the older heritage protected areas of the city can be difficult and costly.
The risk of under insurance on most home owners key asset is too great to avoid. To leave the insurance estimate to a simple default figure provided by the insurance company is high risk and home owners run the gambit of being under insured. It is essential there is sufficient cover so there is no shortfall in an event. Banks should also be aware of this to ensure their security for any mortgage lending is protected.
We have found the increase in premium is extremely small for an additional $100,000 of cover on an asset. For example, in our experience, changing the insurance cover from a default figure of $400,000 provided by the insurer to a total sum insured of $550,000 may only cost an extra $20 to $40 per annum in increased premium. “Small beer” when compared to the potential of under insurance where many thousands of dollars could be at risk.
We would refer you to other articles on our website detailing changes and implications to these insurance issues:
Replacement vs Set Sum – Changes to Insurance Policies
Insurance Valuations – QS or Valuer?
Set Sum Insurance changes set new traps for owners
How much insurance cover do I need to rebuild my home?