“The Mass Movement” of Residential Building Insurance
Insurance has been a continuing interesting theme in New Zealand’s mainstream media in recent years with many decisions from the courts on earthquake insurance issues. More recently the Reserve Bank and the Financial Market Authority released a report highlighting concerns in the life insurance sector which the government has signalled will result in legislative changes later this year. It will be a case of watch that space. There are a few important issues in the residential building and contents insurance area that are worth drawing to your attention.
1. IAG cover in Wellington
IAG has faced scrutiny this year for taking a more conservative approach with new customers who are applying for home and contents insurance in the Greater Wellington region. At this stage, if you are an existing IAG customer in the region and you move house, you are not likely to face barriers to obtaining insurance from IAG. However, if you are a new customer, you will find it difficult to obtain an offer of cover from IAG. IAG underwrites policies from AMI, NZI, State, Lumley Insurance and some policies you get through your bank so this is a worrying development. Apartment owners who make the move to a standalone dwelling are also considered new customers as the Body Corporate is treated as the policyholder, so some purchasers could be caught out.
At this stage, other insurers have signalled they will not take the same approach in the Greater Wellington region. However, while a blanket approach is not currently being taken, some insurers are taking a case by case stance and either declining cover outright or electing to increase premiums for properties they consider are a greater risk.
2. Mass Movement Area in Christchurch
In the more local Christchurch market insurers are declining to provide cover for properties that are subject to risk of landslide or mass movement – this is likely to be a broadening of the Wellington approach. We understand that purchasers of properties in these areas will find it more difficult to obtain home or contents insurance, but so far we have not received any indication that insurers will decline to renew any existing policies for homeowners.
The current land classification of properties in Christchurch is based on a report released by Christchurch City Council in 2013 that identified potential areas in the Port Hills that were at risk from mass movement. These areas were given a category depending on the risk posed and are incorporated in a Mass Movement Area category in the operative District Plan for the district. This ensures that any building works, earthworks or other activities sensitive to landslides face more scrutiny at a local authority level.
The Council has provided some guidance on what each category means and which is worth being familiar with for those who own homes on the hills, or who wish to buy them:
Class I: any further mass movement could see lives lost, and homes and/or critical infrastructure severely damaged.
Class II: any further mass movement could damage homes and aﬀect critical infrastructure.
Class III: any further mass movement could cause damage to homes.
Some of our clients when buying houses have also encountered difficulty in obtaining insurance from the IAG group of insurance companies in areas of Christchurch more susceptible to flooding. Property insurance is becoming more difficult and it pays to check whether you will get cover, and what it will entail, long before you need to make critical property decisions.
3. Natural Hazards and Our Advice to Homeowners
Every property is susceptible to risk in some form or another – that's of course why we have insurance. The age of the buildings, the type of property (e.g. apartment or townhouse), the geographical location or natural hazards in the area all have their own risks.
These types of risks are best assessed prior to purchase. A Land Information Memorandum (LIM) is a great way of ascertaining whether a property is susceptible to any natural hazards. Take the time to consider these hazards carefully and more importantly, ensure that you disclose these risks to your insurer before proceeding. Insurers have their own records and databases available to them, but you are always best to assume that the insurer has no information about the property. Over disclosure at the due diligence stage is better than under disclosure with a resulting decline of cover for a claim down the line.
Your local Council or Environment Canterbury can also provide details of natural hazards in your area on request – often at no cost to you. Often reports on natural hazards and search tools are also available on their respective websites.
This is an important topic for home owners and those purchasing commercial property. We are available to provide advice on the insurance or property issues you might have. We also have good relationships with other experts (engineers, valuers, insurance brokers) who can also assist our clients in this area.