Homeowners are being warned not to run the risk of under-insuring their homes in a bid to avoid paying for rising premiums.
Some customers expecting higher premiums are warned not under-insure homes. Photo: RNZ / Cole Eastham-Farrelly
Risk-prone parts of the country, such as Wellington, are starting to feel the effects of higher rates.
Karori woman Ursula Egan, who insures with Tower, said she and her husband were stunned to find the premium for their house insurance had soared from just more than $2000 to $7000 a year.
Tower announced earlier this year that some customers could expect higher premiums.
However, Mrs Egan said their neighbour's premium had only gone up by $1000.
"Tower does an online quote, so I put all my details in and the addresses for my neighbours and the premiums came out at $3000. There's no - that I know of - geological reason why our premium would be three times what theirs are."
A Tower spokesperson said it used earthquake data software, RMS, to determine the exact location of a property, its proximity to the fault line and what the house was built on - or out of.
The spokesperson said it was entirely logical that two neighbours could have hugely different risk profiles and therefore, insurance costs.
Core Logic insurance director Richard Deakin said in the face of rising premiums, under-insurance was a real risk.
"It's a sad fact of life now that I have to nominate a sum-insured value for my property which is my estimate of how much it will cost to rebuild my house should the worst happen," Mr Deakin said.
"If I haven't covered myself adequately then there is a risk of myself being under-insured and if we are then hit by a major event, if I'm significantly under-insured, I might not be able to afford to build at all."
He said if this happened, there was no back up plan.
"The government doesn't have an obligation to step in. If they decided the event and the under-insurance was of such significant nature that it was going to have a negative effect on society, potentially they may feel an obligation to step in, but they don't have a legal obligation."
Massey University insurance expert Michael Naylor said the Egan couple's 300 percent increase was probably over the top.
He said insurance companies were worried about under-pricing Wellington properties, in case a major earthquake hit.
"Most of the companies are not very keen to hold insurance in Wellington as there will be a major quake there at some stage and they had a bad time after Christchurch," Dr Naylor said.
"Both lost a major amount of money in Christchurch and are keen not to lose it in Wellington. A few of the major Australian firms can close to bankruptcy with Christchurch and they're keen not to have that happen again."
In Palmerston North the local council was taking steps to plan for natural disasters and climate change, Dr Naylor said.
"In Palmerston North, the council has scoped the land so they know which is the good land, which is the bad land, which is the old river beds, and which is the swamps and you can start to see 'the effects will be here', and maybe you start to move towns."
He said the government needed to undertake similar research nation-wide, so it would be better prepared for severe events.
"We should start the process, which some insurance companies are and EQC to some extent, but there should be a long-term comprehensive programme lead by the government."
The Insurance Council said insurers actively engaged with central and local government and other stakeholders to raise awareness of natural hazards and promote New Zealand's resilience.
