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Is house insurance unaffordable?

22 Sep 2017

House insurance has ballooned as much as 300 per cent in a decade, and for many, it is a cost they are struggling to afford.

Homeowners are facing the perfect storm of hikes in Government levies and increased insurance costs due to natural disasters and methamphetamine contamination

NZBrokers collective chief executive Jo Mason said consumers would be hit hard by another price hike and she wished the Government and insurance representatives could work together to spread the burden.

"Why can't they devise a way so that it goes up incrementally every year, rather than absolutely slapping people at a time when they're struggling to get into a house," she said.

Insurers are starting to put an extra cost on tenanted properties because of the risk of methamphetamine contamination, which could see owners paying as much as $180 more a year.

Long considered a necessity for responsible homeowners, some property owners are opting to take the risk of not having insurance. Recent flooding in Edgecumbe saw 20 homeowners facing heavily losses because they were uninsured.

"The people that owned them, their lives are completely devastated. Their biggest asset has  gone. If people are not seeing the value of insurance, that's a really dangerous situation to be in," Mason said.

New Zealand Insurance Council chief executive Tim Grafton said though they were not aware of an increase in non-insurance because of unaffordability, many home owners struggling to pay for house insurance may be opting to underinsure.

"We want to see insurance available and affordable for people so that is a concern."

Even though the risks may not have changed greatly in the past decade, the understanding of the risks properties faced, particularly around earthquakes, had increased significantly.

"Prior to the Canterbury earthquakes, the modelling-suggested maximum loss in Christchurch was about $16 billion ... it turned out to be more than double that," he said.

Property owners in the greater Wellington, Kaikoura and Christchurch areas pay more because of the heightened earthquake risk.

In 2012-13 house insurance jumped dramatically as reinsurers realised they had to charge New Zealand insurance companies more because of the losses from Canterbury quakes as their understanding of risk increased.

Government levies pushing up prices

The Earthquake Commission's levy has tripled since 2012 and is set to go up by another third in November. Insured homeowners currently pay 15c per $100 of insurance cover, up to a maximum of $207 a year, as part of their insurance premiums. From  November 1 homeowners will pay 20c per $100 of insurance cover, with an annual cap of $276. Prior to 2012 the EQC levy was capped at $69.

Minister responsible for the Earthquake Commission Gerry Brownlee said the rise was needed to ensure EQC was on a sustainable footing into the future.

"It would currently take more than three decades before the NDF reaches EQC's reinsurance excess of $1.75 billion – and that's in the absence of any significant natural disaster like the Kaikōura earthquake. The new levy rates mean we will be well on the way to restoring the fund to this level within 10 years," Brownlee said.

The Fire Service levy rose by 40 per cent to $106 from July this year.

 

 - Fairfax Media

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