Some of the large insurance companies have signalled their intention to change the way they calculate property insurance premiums. Instead of “cross-subsidisation” of premiums based on risk across the country, future insurance premiums will be based on where the risk is actually located.
New Zealand has a wide range of risk profiles and places. For instance, Auckland and Northland have a lower risk profile than Wellington and Christchurch, where there is greater risk of an earthquake event occurring, or parts of Dunedin where there have been three ‘1 in 100 year’ floods in the past four years. Up until now, insurance premiums didn’t differ that much across the country. Currently the policyholder for a property in an area that has a five-way risk profile might pay the same premium as a policyholder in Auckland, which has a much lower risk profile.
Moving away from cross-subsidisation could result in insurance premiums in places like Auckland reducing whilst premiums in areas like Wellington and Christchurch increase, especially in high risk locations (like beach-front). Some parts of New Zealand could potentially become partly or completely uninsurable - or very, very expensive to insure (either a high premium, a high excess for certain events or possibly no cover at all for certain events).
Although we don’t specialise in property insurance, the proposed changes have relevance to our clients.
If you are in the process of purchasing a home, when you have found a suitable property we suggest that you determine the potential risks to the property and make enquiries about insurance before declaring any agreement unconditional. You won’t want to unconditionally contract to purchase a property only to discover that the insurance is either incredibly expensive or unavailable as banks require borrowers to provide evidence of insurance cover before it will release the finance required to settle the purchase.
If you are an existing homeowner, you need to be aware that your insurance premiums might increase, depending on the location / situation of your home. It could be worthwhile obtaining quotes from a number of insurers to ensure you are getting the appropriate cover for the right price.
If you need help with your insurances or want to discuss your options in further detail, we would be happy to refer you on to an insurance specialist.
Article source can be found here.