Crackdown on insurance payouts
18 Apr 2017
The Insurance Council is warning owners of earthquake-damaged homes in Marlborough that banks are cracking down on insurance pay-out spending.
The message was given at a community meeting last week in the small township of Ward, where residents are among those in line for cash settlements to handle their own rebuilds and repairs.
But a lawyer with expertise in the insurance area said navigating the fine print was tough for many, and a government-backed advisory service was still needed.
Insurance Council chief executive Tim Grafton said the conditions around insurance payouts were long-standing, but recent changes to how settlements were paid had highlighted the rules.
Private insurers have now taken over Kaikōura earthquake claims from the Earthquake Commission (EQC), and home owners are to receive cash payments in order to manage their own repairs. Insurers will be reimbursed by EQC.
Mr Grafton said it was unfortunate it took a disaster for people to read the terms of their mortgage contracts.
"After an earthquake you suddenly wake up to the fact that you signed a contract with a bank that has a contractual interest in that property, and payments on that property," he said.
A Wellington lawyer who was part of an advisory service for earthquake-affected Christchurch residents, John Goddard, said people were going to need help navigating the fine print of insurance claims and settlements.
Mr Goddard said, in Christchurch, the government made sure everyone had access to free legal advice, and the same would be needed in Marlborough, and now in Bay of Plenty due to the last serious flood.
"I think people have a real need for free and independent legal advice, so that the decisions they make in the next six to 12 months, which are going to have really significant implications - not just for them but also their communities, are good business decisions," Mr Goddard said.
The Insurance Council advised Ward residents making sizeable claims to get in touch with their bank to let them know how the money would be used.
Spokesman John Lucas said at last week's meeting that banks would be checking to see the money was used correctly.
He said in some cases the insurer would be required to pay the bank if the claim was over a certain amount.
Repairs would have to be done correctly and there were instances in Christchurch where money was used for things other than house repairs.
Mr Goddard said it was not uncommon for people to have used settlement payments for other things, or used part of it for repairs and spent the remainder.
In some cases there was nothing wrong with that, unless there was a mortgage on a property.
But Mr Goddard said it could cause problems down the line.
"It left them in an awkward position when they would go to sell their property because potential purchasers - as part of their due diligence - would ask: 'What was the earthquake damage and how was it repaired?'
"Not everyone was able to answer that question satisfactorily."
Mr Goddard said recovery took longer in smaller, more isolated communities.
"When communities are hit like this, they need a boost just to be able to recover, otherwise it will be more painful and it will take longer."