The insurance cost of earthquakes and procrastination

Does procrastination undermine wealth?

After the recent earthquakes and aftershocks across the centre of New Zealand and a subsequent embargo by most insurers, we were inundated with people wanting to increase their sum insured and contents insurance – of course, by then it was too late.

For example, one of my prospective clients had been given a quote for home insurance on her new property early in October. All quotes are valid for thirty days, but it was only post the earthquake that the client got back to me about implementing the policy. Unfortunately, by then, an embargo on all insurance was in place.

Soon after the earthquakes most insurers placed an embargo on all new insurance policies and alterations to existing policies that covered easily half of New Zealand, from Christchurch to the Bay of Plenty. Initially, even car, boat and bike insurance policies were put on hold, but gradually lifted later.

The existing embargo – which has since shrunk to include most of the top of the South Island and up to just north of Wellington – allows existing policy owners to transfer their insurance policies to a new property or rentals. In other words, you can take your existing insurer’s policy with you, but can’t take out a new one with a new Insurer.

For example, if you are buying a house, the vendor can transfer his or her sum insured policy over to you – OR they can take it with them – provided that the amount remains the same as what they insured the property for. So if the vendor had $400,000 sum insured, you can pick up the $400,000 policy, provided you meet the underwriters terms and conditions. You may not increase the value of the policy, even if you believe the previous owners undervalued.

Be sure to find out from the seller if they are also buying in an embargo zone as well – if they are, they may be looking to transfer their own policy to the new address (if the property that they are purchasing e.g. does not have insurance). If they transfer their current policy to the new address and if you do not have a current Home Building policy in the embargo zone, that may leave you exposed and unable to arrange insurance on your purchase!

However, if you already have an existing policy, you may be able to take it with you to the new property. If you are in the process of having a house built, you may be able to ask the builder’s contract works Insurer to convert that to a Sum Insured Replacement policy for you.

If you have purchased an existing property in the embargo zone, make sure that you are kept informed if there is and EQC claim on the property. You would not want any pay-out to go to the vendor, who has long since left the property, while you sit with the damages. Ensure your lawyer and mortgage broker are on to this.

The most salient lesson we can learn from all of this? Be insured, be insured for the right value and don’t procrastinate.

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