File photo. About two-thirds of surveyed policyholders lacked an understanding about what it would cost to rebuild their home. Photo: RNZ
Underinsurance is an increasing problem with many homeowners unaware of how much insurance they will need to rebuild in the event of a total loss.
Property research firm CoreLogic said many of the 1014 policy holders surveyed in its latest report were seriously exposed to the risks of major property damage from such things as destructive climate change-related weather events and earthquakes.
Country manager Simone Moors said New Zealand's high home insurance rate of between 96 to 98 percent was good, however nearly a third of homeowners were not confident their property was adequately insured.
More than a third (38 percent) did not know what their property was insured for.
While one-in-10 selected their insurance policy because of low excess, only two-thirds knew what their excess was.
"People are paying for insurance, but if the sum insured is insufficient for the cost of rebuild, they are not fully covered and may only find out about this at the worst possible time," she said.
Photo: CoreLogic / Supplied
CoreLogic NZ's Cordell Construction Cost Index (CCCI) third quarter report indicated national residential construction cost pressures had continued to escalate, with both quarterly and annual rates of indexed growth reaching record highs.
"Even the most risk-averse consumers can be underinsured very quickly."
Moors said about two-thirds lacked an understanding about what it would cost to rebuild their home.
While respondents believed property values rose 31 percent and rebuilding increased by 41 percent in the past 12 months, more than half (56 percent) had not reviewed their home insurance cover in the last year.
"This is not only a risk to the consumer, but for mortgaged homeowners there is a hidden risk sitting on New Zealand banks' balance sheets," Moors said.
The average homeowner only reviews their insurance cover every 2.5 years, which was seen as too long given the fast changing conditions.
Of those who did review their policy annually, just under half (49 percent) increased their cover, while 40 percent left it unchanged and 2 percent reduced it.
CoreLogic head of insurance solutions Matthew Walker said the industry had raised concerns about the overall adequacy of insurance coverage.
"Coupled with the ongoing risk of earthquake, the data and insights indicate many insurance policyholders are highly exposed, most of them unwittingly - not just to the loss of their home but to serious financial harm, given that for most homeowners their property represents the bedrock of their wealth," he said.
