I don’t proclaim to be an expert on insurance. Weaknesses in govt’s Christchurch buyout plan were pretty obvious who thought about it for a couple of minutes. Option 1: GV for land & property, would not be enough to buy replacement for most. Option 2: GV for land – activate replacement clause in insurance contract for house, would only work if insurer agreed house was a complete write-off. Option 2 failing already.
Over at Public Address, David Haywood is in exactly this situation. Neither Option 1 or Option 2 will get a replacement house and property for his family. Not unless he borrows another $200K:
“Naturally, when we eventually found the right place, we were very careful to insure it properly. I am a great believer in insurance – and, being a very old house (100 years old next year), I made sure that we purchased total replacement cover. For old houses the book value is usually much less than the total replacement cost; high ceilings and double-hung windows have become expensive in the modern world.
Indeed it was one of the things that has consoled us through three massive earthquakes; through the times we lived without sewerage, water, and electricity; through the six weeks when we were evacuated from the city with a young baby and a three-year-old. At least, we thought, we had total replacement insurance – if the worst came to the worst we would be able to rebuild a house of the same quality and size as we had before.
And yesterday, of course, the worst (as regards to the house) happened. A man called Liam phoned us to say that we had nine months to leave the property. Although our house was repairable and the land comparatively undamaged, the state of the surrounding houses meant that we had to go. Fair enough – and, of course, at least we had total replacement insurance.
But when I phoned Tower Insurance this morning to initiate a claim – guess what? They found a loophole.
Tower Insurance maintain that the house is not a write-off. They maintain that they are only obliged to repair the house – not to honour our insurance policy for total replacement. They say that just because we won’t be allowed to live on the land, and that the house will be bulldozed, doesn’t mean that the house is an insurance write-off. Sorry, they say, but what the government mandates with regard to land is nothing to do with them.
Tower say that they will only pay the book value on the property – the very thing that we have been paying insurance for years to avoid. And by Tower’s own numbers this leaves us nearly $200,000 short of the money required to replace our house.”
Haywood will be one example of many. Safe to assume not everyone in Haywood’s position has a major blog to tell their story on.
Like I said the other day, Option 1 was so obvious that it could have been thought of in minutes, and should have been thought of months ago.
Option 2 addresses obvious weakness in Option 1: that GV isn’t the same or anywhere near replacement cost for many, even most because GV on the land is done on an area by area basis and is well below market, and building a new building is going to be very expensive in NZ in coming years.
Shouldn’t have taken long to come up with Option 2 either. But Option 2 wouldn’t work for many because insurers would refuse to activate replacement clauses (don’t get to be multi-billion companies by paying out claims you don’t absolutely have to).
Again, obvious. Again, an easy solution.
Govt says to insurers – you will treat every home in red zone as a complete write-off and activate replacement clauses, the Crown will pay you back the difference when replacement exceeds actual insured damage.
OK. One fishhook dealt to. Next.
Govt should buy out any uninsured. The govt writing off your street is not an event insurance will pay you out for anyway. Govt can’t have a couple of dozen houses still standing, still privately owned scattered around the red zones when they’re trying to do major remedial work. They’ll face law suits for withdrawing utilities from private properties in govt-declared red zones. Govt should make it easier on themselves. Fix the uninsured problem for the future by making EQC part of rates and big enough to cover land buyouts. Deal with the current problem by just buying them out.
Address the problem that land GVs are too low to buy replacement land out of red zones by scaling them up by an appropriate % of current land prices in new suburbs vs land prices in red zone before September quake.
These are the simple solutions to what actually aren’t very complicated problems from a confessed non-expert. You might see weaknesses in them. Good. There will be fixes for those too. That’s meant to be what Gerry has been doing for the past nine months: coming up with a basic solution, then plugging all the gaps.
More expensive? Yes. But it is the govt’s decision to abandon these suburbs. Ultimately, the govt/council’s decision that the land could be built on in the first place. It should wear the cost. Not to mention both Brownlee and Key promised that no-one would be worse off. Call me old-fashioned, but promises matter.
It’s jaw-dropping that Brownlee hasn’t managed to come up with the answers to these fishhooks. He should be sacked. But he won’t be because his real job is to take the punches while Key stays out of the way.