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Insuring, and paying for it

by Lindsay Shelton
It was six months ago that I discovered IAG wanted to get out of the home insurance business in Wellington. So this week’s news wasn’t a surprise.

For years, IAG had been the insurer for my home in Brooklyn, and up to 2016 we’d always paid less than an annual $2000 for the house and contents.

In 2017 the cost had gone up to $3000, which didn’t seem too surprising, after the earthquakes. But when the bill arrived last year, there was another increase and it was startling. The company wanted us to pay over $4800 – almost $2000 more than the previous year, and $3000 more than two years earlier.

Our insurance broker said the quote was probably a sign that the company wanted to get out of the home insurance business. She said she would find another insurer, with a lower premium. She came back with a policy proposal from Vero. The cost: $3814. More than $1000 less than what was being asked by our unfriendly long-term insurer (which is, by the way, a hugely profitable company).

Meantime I had to renew the insurance for my car (with AA Insurance, who aren’t on my broker’s list). An efficient call centre person asked if I needed other policies as well. Do you have house insurance, I asked. The answer was yes. I provided details on line, then answered some questions on the phone, and a quote was promptly delivered – for $2300. Not much more than the IAG premium in 2016.

All three policies insured the house and contents for the same amount. Each of them had pages of small print, for anyone who had the time and the ability to carry out a comparative analysis. Would the cheapest premium give us as much security as the more expensive one? This was a question that only an insurance expert could answer. We decided to stay with the insurance broker and go with Vero – at least avoiding the outrageous premium from IAG.

IAG have been sending out mixed messages since the first report. They told RNZ yesterday that they are “rejecting more applications than they are accepting in the capital” – but they didn’t mention that they are asking for outrageous premiums. The chief executive of the Insurance Council didn’t seem surprised by any of this. He described the options for insurers concerned about the risk of quakes: “increase price, not accept the risk or approach it in a different way by limiting their exposure to a risky market”.

Writing yesterday on eyeofthefish, Leviathan was taking a more pessimistic view of the insurance issues:

Possibly … it is the sound of the death bell tolling for the future of Wellington as a city. It is almost certainly the death bell for the future of people building, living in, buying, and selling apartment buildings in the city. It is a really seriously big story … Here’s why. I live in an inner-city apartment building, unit-titled into various different sized apartments. As apartment buildings go, it is not too bad – certainly better than most, but it is developed from a previously commercial building, like many are in Wellington. In the depths of the Unit Title Act, it requires that a Body Corporate be set up, and that it be the responsibility of the Body Corporate to arrange Insurance for the building. Insurance is not an option – it is compulsory.

Looking back through the records, in 2000 the bill for insurance was about $20,000 a year (for the entire building), inching up to $27,000 a year. That is handleable, as insurance is only one part of the Body Corp bill – there is also Maintenance, Electricity, Cleaning, etc etc. And we aren’t worried about our building falling down in an earthquake, as it is quite strong already, so it does not need strengthening… Each year our Body Corporate would seek quotes for insurance – and get back 6-7 quotes each year … After the 2010, 2011 Canterbury quakes, things changed – and only got progressively worse … So, currently, while wages have gone up by perhaps 2% per year (if you are lucky), insurance costs have gone up by six times, over the last 8 years. That’s untenable. It also makes your property… un-tenantable. And unaffordable. It also makes the dream of inner-city living take an immediate dive. Who is going to buy a Wellington inner-city apartment if they have to pay insurance costs 4 times higher than their rates bill? Makes the mortgage look tiny by comparison. Those who already own apartments are going to find it increasingly hard to sell them, and those who have to move to Wellington will find it increasingly beneficial to rent a house in the suburbs, instead of an apartment in town. Our Body Corp will have paid out well over a million dollars in insurance money over the last decade … Self-insurance is a much more palatable option, but it is forbidden by NZ Law.

Leviathan’s verdict: We need to change the laws and rules around insurance. And we need a system where building owners can afford to sleep safe at night, without going bankrupt in their beds.

1 comment:

  1. michael, 14. March 2019, 12:12

    Until we live in a world where people are the focus not vast profits, nothing much will ever change.

     

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