Beware Aussie insurers
The mystery shop has concerning implications for Australian home insurance, as there's a large degree of overlap between Australian and New Zealand insurers. ANZ and Westpac sell insurance on both sides of the ditch, while Australia's largest general insurer, Insurance Australia Group (IAG) – the owner of Australian brands such as NRMA and Coles Insurance – also owns New Zealand insurers NZI, State and AMI.
Total replacement or sum insured?
In contrast to the Australian experience, most Kiwi homes have had a total replacement policy for the previous 20 years. Total replacement cover pays whatever it costs to repair or rebuild the building, taking into account policy exclusions. But Consumer NZ reports that since the Canterbury earthquakes all NZ insurers, bar one that they know of, are switching to sum insured policies.
This will align the NZ market with the Australian experience where only two insurers, ANZ and AAMI offer total replacement cover, with the rest of the market selling sum insured policies.
Why total replacement?
Total replacement policies may end up costing more but they provide the ultimate protection from under-insurance, so CHOICE recommends them for people living in areas at risk of natural disaster, such as flood or bushfire.
Bushfire expert Phil Koperberg, who coordinated the Blue Mountains Bushfire Recovery, told an insurance gathering in Sydney that regulations setting greater levels of fire-resistance for new homes left many under-insured, Insurancenews reports.
"We can't afford to have another community wake up with the realisation that they're under-insured by about $200,000," Koberberg said. "The reality is that 10 months after [the Blue Mountains] fires, more than 50% of the people who lost their homes cannot afford to rebuild."
Total replacement policies address this problem by protecting against demand surge and new regulations. Building costs rise as the demand for building services rise, as does the cost of temporary accommodation, and often homes also have to be rebuilt to new, higher standards after a flood or bushfire. This can mean the cost of rebuilding your home is a lot more than your sum insured, and a lot of people are left under-insured as a result.
In addition to total replacement policies, the CHOICE home insurance comparison lists several insurers that offer 'Extended replacement polices' which add a specified percentage on top of the sum insured amount when re-building.